The Economy Just Grew 1.7 Percent, But It Should Have Been Much Better
The recovery has been weak, but it wouldn't be quite so if we stopped making it that way
The economy is growing, but it's not growing fast enough, and now we have new numbers to tell just how not fast that is. The initial estimate for second quarter GDP growth came in at a depressing 1.7 percent, which, even more depressingly, was actually better than expected.
Welcome to the recovery.
Of course, even this relatively good news came with a caveat. First quarter GDP got revised down from 1.8 to 1.1 percent, which made growth look better in the second quarter, but certainly not the economy overall. And that's coming off a fourth quarter in 2012 that registered just 0.1 percent growth. In other words, it's been 9 months of nothing but stall speed, if that.
Well, it's the austerity, stupid. For whatever reason, whether it's deleveraging or inadequate policy or both, recoveries from financial crises tend to be slower than from garden-variety recessions. But we've taken it a step further than inadequate policy with actively bad policy. Yes, we needed to stabilize the debt (as we have already), but we did so too fast and too soon. You can see that in the chart below that looks at what has added to (or subtracted from) GDP growth since the recovery officially began in June 2009.
A few things stand out. Yes, inventories have bounced around like inventories do, and our trade balance has generally been a net negative for growth, but business investment has actually increased at a decent clip. The real culprits of the weak recovery have been weak housing and weak government spending. Now, housing is easy enough to understand. There was the boom, and then the bust, but we didn't do enough to end the bust. We didn't write down underwater mortgages, and only belatedly refinanced them on a wide scale. But years of basically building no houses at all has actually left us with too few houses now -- so few that residential investment finally started adding to the recovery last year.
Maybe next year, Godot.