Thursday, June 25, 2009

2009 1st Quarter GDP "Not As Bad As Previously Thought"?

U.S. Department of Commerce Bureau of Economic Analysis released the 2009 1st Quarter Gross Domestic Product data, which showed the GDP contracted at an annualized pace of -5.5%, instead of -5.7% as previously estimated.

That's apparently enough to propel the stock market up today, despite worse-than-expected job loss. Jobless benefits rose last week by 15,000 to a seasonally adjusted 627,000. Economists were expecting a decline.

I decided to look into "what was less bad" in the 2009 1st quarter GDP number, and here's what I've found so far:

  • Personal consumption was 72% of GDP, up 1% from 2008 Q4. One year ago, it was 71%.
  • Gross private domestic investment was 12% of GDP, down 2% from 2008 4th quarter. One year ago it was 15%.
  • Government consumption, expenditure and gross investment was 18% of GDP, no change from 2008 Q4 or the same quarter last year.

In absolute numbers (not percentage), personal consumption and government spending hardly changed from 2008 Q4. Government spending was constant throughout 2008 and the first quarter of 2009. So, what contributed to the "less bad" figure?

One of them is net export. Net export was "less bad", because the decrease of imports were significantly more than the decrease of exports. That's not very much to cheer about.

I cannot find any other, though. Private non-farm inventories got further reduced. Private domestic investment continued to decline across the board. Real economic recovery will not come until private domestic investment stops declining and starts to increase. Government's investment and expenditure cannot take its place, because any government spending has to be funded by the private sector and taxpayers, taking away the capital from them which otherwise could be invested.


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