Feds Juice Numbers, GDP Still Weak 1.7%

Feds Juice Numbers, GDP Still Weak 1.7%

on Wed, 31 Jul 2013

On Wednesday, the Commerce Department reported that the economy grew by 1.7% in the 2nd Quarter. This first estimate will likely be revised in the coming months. The final estimate for the 1st Quarter was revised downward from 1.8% to 1.1% in Wednesday's report. The economy remains essentially stalled. 

In mid-July, economists at major banks slashedtheir estimates of growth in the 2nd Quarter. The numbers reported by Commerce on Wednesday beat those reduced expectations. The markets, and many in the media, reacted positively to the news, which is evidence of the poor perception of the economy. In any other economic climate, 1.7% growth would be seen as a very weak number. The 2nd Quarter marks the fourth year of the economic "recovery" and ought to generate more growth. 

The numbers, however, may be even weaker than Wednesday's report. The Commerce Department, this month, changed how it reports GDP numbers. It now includes spending on intellectual property from artistic, literary and non-profit activity as fixed investments. Commerce noted that this change would increase GDP, as these items had not previously been counted in the nation's investments. 

The change, which increases the size of the economy, puts the 1.7% growth number in sharp relief. The addition of an entire new category of investment ought to have fueled a much higher growth number. In other words, the feds reconfigured how they calculate GDP in a manner that is positive to growth, yet actual growth was still a weak 1.7%. 

It is unclear what the GDP growth number would have been under the traditional measurement. Growth in personal consumption, the main driver of the economy, was considerably less than the 1st Quarter. As the 1st Quarter number as been repeatedly revised downward, it is likely that Wednesday's number will be lowered in the future.

For 4 years, pundits and the media have grasped for any sign that the economy is growing. We've repeatedly been told that the economy is on the cusp of robust growth. Hopes have been so diminished that Wednesday's juiced number of 1.7% growth looks like a recovery. Zero to flat growth is, it seems, the new normal.