“Surprise!” say the sell-side, upbeat economy touts. Second quarter GDP growth came in at a 4% pace, well above the expected 3% pace.
But that’s as good as the news gets.
It’s best to average two choppy quarters, especially when the first quarter was said to have been depressed – now to a minus 2.1% pace – by special factors, like weather. Well, the average growth rate for the first half of 2014 was 0.95%, quite a lot weaker than the 3% pace expected early in the year by the Fed and most analysts and is, actually, pretty close to stall speed.
Inventory changes, change in the stock of unsold goods, exacerbated the volatility of first half growth numbers, accounting for nearly half (1.7 percentage points) of the second quarter growth “rebound.” Final sales, the best measure of demand growth, rose at a modest 2.3% pace after having fallen at a 1% pace during the first quarter. That puts the average pace of US demand growth during the first half of 2014 at 0.65%. We need 4 times that pace to sustain a recovery, especially when the Fed is tapering and talking about raising interest rates next year – as if to declare its confidence in an as-yet-nonexistent, sustainable recovery.
Stronger state and local government spending contributed 0.3 percentage points to the second quarter growth rate, something that’s not likely to continue given that the year-over-year trend pace of government spending growth is minus 0.7%, reflecting a continued atrophy of fiscal stimulus. Adjusting for unsustainable inventory building and government spending, the second quarter “rebound” growth number was 2%, just above the average pace of 1.8% since the end of 2010.
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