July 30, 2010

2Q10 GDP Growth: An Annualized +2.4% (Updates: Looking at the Comprehensive Revision and the Current Quarter)

Filed under: Economy,Taxes & Government — Tom @ 8:51 am

The BEA report (full text with tables) is here.

The result is pretty much in line with predictions, as noted in this post yesterday, where the consensus forecast was 2.5%. I saw another consensus prediction from Bloomberg that it would be 2.6%.

UPDATE: First, let’s deal with the comprehensive revision to prior quarters going back to mid-2007 (BEA actually went back to the beginning of 2007).

Here are the new figures:

RevisedGDP2Q07to2Q10

Initial observations:

  • The recession as normal people define it still ran from the third quarter of 2008 through the second quarter of 2009.
  • That recession, which was caused by the creators of the POR (Pelosi-Obama-Reid) economy, was even more severe than originally thought. This is the second serious downward revision to 3Q08, which was originally thought to have been an annualized -0.3% in October 2008, and then -0.5% in November (there was no change in December). Last year’s comprehensive revision chopped that number down to an annualized -2.1% in July; a later revision took it to -2.7% . Now as seen above, it’s -4.0%. What’s more, 4Q08 is also much worse than before, at -6.8%. It’s amazing what a political party bound and determined to take down an economy in the name of achieving power can do.
  • The downward revision to 2Q08 (from +1.1% to +0.6%) appears to support a contention that the POR Economy’s official beginning might have been sometime in mid- to late-May instead of June of that year. It wouldn’t be surprising if entrepreneurs, investors, and businesspeople picked up on the hostility of Team Obama, which after all had its nomination victory virtually in the bag by late April, earlier than originally thought. That they detected the coming “It’s the Uncertainty, Stupid” situation that this bunch began creating and have continued to build in the two years since would not be surprising.
  • The “Rebound? What Rebound?” alleged “recovery” is about the same as originally thought. 3Q09 was 2.2%; now it’s +1.6%. 4Q09 was 5.6%; now it’s +5.0%, which is far lower than Bush 43′s first blowout quarter (+6.9% in 3Q03) and Reagan’s first blowout year (+7.2% in 1984, or if you prefer, four quarters straddling 1983-1984 that averaged a mind-boggling +8.5%). 1Q10 is better than originally thought (+3.7% vs. +2.7%), but that makes the 2Q10 figure reported today more problematic, especially given that the consensus is that the economy isn’t growing as fast during the current quarter, and may even be contracting again.

UPDATE 2: So here’s the latest on how far we sank and how much of it has been gained back after today’s comprehensive revision:

POReconRecessionAndRecovTo2Q10

What had been a reported shrink of 3.83% is now 4.13%. Thus, as noted earlier, the POR Economy’s recession really was worse than originally thought.

Based on the revised quarterly data, we’re still less than three-quarters of the way back to where we were before the first full quarter during which the POR economy was in effect. It would take another couple of quarters of 2%-plus annualized growth to finally get GDP back to where it was at the end of 2Q08. I’m afraid it will take longer than that to get to that point–and even then, per-capita GDP will have fallen by about 2%-3%.

UPDATE 3: As to the current quarter, inventory growth still was a significant GDP component (+1.05 points), though nowhere near as big as it was during the two previous quarters.

Fixed private investment, which excludes inventory changes, was a +2.09-point component. That line item had its best quarter in a very long time in both its residential and nonresidential elements. There was nice improvement in each nonresidential element, including yet another outsized contribution from “Information processing and software” and an encouraging +0.44-point contribution from “Industrial equipment.” One could argue that fixed investment was long overdue for a good quarter, given how bad previous ones were (after all, you can’t hold out forever, and at some point you have to replace worn-out equipment). But it’s very welcome nonetheless. I just hope it’s not revised downward when better data becomes available.

Government (a +0.88-point component, +0.72 federal and +0.16 state) was a significant growth contributor in the second quarter. Fiscal realities would seem to dictate that this is probably not sustainable.

The stunner is net imports, which came in as a -2.78-point GDP component (+1.22 exports, -4.00 imports). That’s far more negative than seen in any of the previous 11 quarters in the BEA’s report. It seems too negative. If so, GDP may see upward revisions in the next two releases, which would be a welcome change from the track record during previous quarters.

Overall, I’m taking today’s data as “not as bad as feared,” and reason for some guarded optimism.

One big question is how much of today’s reported gain took place in April and May vs. June. Recent economic data indicates that June was probably the worst month of the three.

UPDATE 4: From the Financial Times

President Barack Obama, noting the economy had been growing for a full year, called the GDP numbers “a welcome sign compared to where we were.” But he added: “We’ve got to keep on increasing that rate of growth and keep adding jobs so we can keep moving forward.”

Well, as has been chronicled here since mid-2008, you and your party are why we were where we were — and as noted earlier in this post, we aren’t even back to where we were before you, Pelosi and Reid put us where we were.

CNBC Reporter: Bush Tax Cuts Only Affected Those Making $250K or More

BushSignsTaxCut2003CNBC.com’s Jeff Cox needs to brush up on his financial history.

He believes that George W. Bush’s 2001 and 2003 tax cuts affected only the highest-earning taxpayers, i.e., those who gross $250,000 a year of more. He’s wrong.

Here’s part of what Cox posted this morning (erroneous statement is bolded; HT to Mark Levin in his Thursday broadcast):

Letting Bush Tax Cuts Die Would Kill Recovery: Analysts

The nascent US economic recovery would be halted in 2011 if Congress fails to extend the Bush tax cuts for the wealthiest Americans, analysts at Deutsche Bank said.

The cuts were enacted in 2001 and 2003 under President George W. Bush and covered those earning more than $250,000, but they are set to expire at the end of this year.

Deutsche said the drag on gross domestic product should they lapse could be as much as 1.5 percent, with the more likely impact at 1.1 percent.

The impact would be worse, the analysts said, if Congress fails to fix the Alternative Minimum Tax, which was enacted in 1969 to make sure rich people pay taxes but was never indexed for inflation, and thus is now hitting middle-income workers.

… The opinion runs counter to that of Treasury Secretary Timothy Geithner, who said earlier this week that allowing the cuts to expire would not cause the economy to re-enter recession. The administration has proposed letting most of the tax cuts stand, but eliminating the ones for the top-tier earners.

Deutsche compared the situation to Japan in the 1990s, when the government let tax cuts expire and cut stimulus, leading to another leg down in the recession and ensuring the nation’s “lost decade” of no economic growth.

While the US is headed toward unmanageable debt levels, now is not the time to start tightening the money supply, the analysts said.

It wouldn’t have taken much of an effort for Cox to learn the truth. In fact, it took me about 5 minutes to find the following items (too bad documenting them doesn’t go as quickly):

  • From CBS News (May 28, 2003; “Bush Signs Tax Cuts Into Law”) — You could tell that the network’s Jarrett Murphy wasn’t happy with having to report it, telling readers that “… Mr. Bush said the tax legislation will provide relief to 136 million American taxpayers.” It’s as if there was no reason to believe the president.
  • From the Tax Foundation (June 21, 2007) — “… the Bush tax cuts were mainly across-the-board cuts in tax rates …”
  • USA Today (May 19, 2003; three-paragraph excerpt from “Bush’s drive for tax cuts fueled by his principles”) — Reporters Judy Keen; Laurence McQuillan quote Bush as saying in part: “”Across-the-board tax relief does not happen often in Washington, D.C.”

Cox wouldn’t even have had to go to Google or Google’s news archive to learn how wrong he is. More recently, as in two weeks ago, Bloomberg briefly explained what the Bush tax cuts did in a report that was primarily about how Former Federal Reserve Chairman Alan Greenspan (sigh) wants everyone’s taxes to go up next year (“Greenspan Calls for Congress to Let All Bush Tax Cuts Expire”):

… Bush tax cuts that passed in 2001 and 2003 gave middle- income earners a 10 percent rate on couples’ first $14,000 in income; subsidies for college expenses, a higher child-care credit and relief from the marriage penalty. Keeping those and other reductions for the 130 million households earning less than $250,000 would cost about $300 billion a year, according to the congressional Joint Committee on Taxation.

The Bloomberg item also notes that “President Barack Obama campaigned for election in 2008 on a promise of extending the Bush tax reductions for families earning up to $250,000 while eliminating the cuts for higher- income Americans, a position also embraced by most congressional Democrats.” Of course this means that many other Americans earning below that amount received tax cuts.

This is a pretty blatant error, especially considering that it’s from a business network. Tighten things up, guys and gals.

Cross-posted at NewsBusters.org.