Thursday, July 31, 2008
Today's report on U.S. economic growth had something for everybody. For the optimists, it was surging exports and a government stimulus induced boost to personal spending that pushed second quarter annualized real growth to 1.9 percent.
For the pessimists, it was the massive downward revisions to prior data that, during the fourth quarter of 2007, produced the first negative growth number since 2001.
What's most interesting, however, is the nature of the revisions going back more than three years that effectively lopped two percentage points off of economic growth during that period. The revisions to major categories are shown below.
As seen in the shrinking blue bars, the contributions to percent change for personal consumption were revised downward by about a half percentage point in 2005 and 2006 with nearly a full percentage point reduction in 2007, most of this occurring in the fourth quarter.
Revisions to the other categories roughly canceled each other out - net exports up about a half percentage point, government spending down an equal amount, and little change to domestic investment.
When looking at these four major categories over time, the consumption binges are clear to see - in the years prior to the tech bust in 2000 and leading up to the housing bust in 2006 - but the surge in exports in recent quarters is quite remarkable.
Improving exports, driven largely by a weaker dollar, have been one of the few bright spots for the U.S. economy since the housing bubble turned into a housing bust.Obviously, private domestic investment remains in a funk and, not surprisingly, government spending is growing steadily. Over the last year or so, government spending has been responsible for about 25 percent of overall economic growth.
If government spending and exports were removed from the data, economic growth would have been negative in four of the last seven quarters. This measure turned negative for only three quarters during the last recession in 2001.