By Steve Eggleston

Last month, the Bureau of Economic Analysis estimated that real GDP in the first quarter of 2015 increased by an annualized 0.2%. In the second of three regular looks, which incorporated most of the economic data from March, and to a lesser extent February, that wasn’t available last month, the BEA revised that to a 0.7% decline. When rounded to the nearest hundredth of a percentage point instead of the nearest tenth, GDP change went from +0.25% to -0.75%. If that holds up in next month’s final revision, it will be the second consecutive 1st-quarter drop and the third 1st-quater drop after the Great Recession “ended”.

The biggest reasons for the downward revision were the change in private inventories and net exports. In the first look, change in private inventories gave GDP a 0.74 percentage-point boost, with the change in non-farm inventories giving a 0.76 percentage-point boost. In the second look, the overall change in inventories only gave a 0.33 percentage-point boost, with the change in non-farm inventories giving a 0.36 percentage-point boost. It wasn’t because people spent signficiantly more on goods – the goods portion of personal consumption expenditures went from contributing +0.05 percentage points to GDP change to +0.10 percentage points.

Most of that increased spending appears to have gone toward imported goods – net exports went from taking only 1.25 percentage points away from GDP growth to taking 1.90 percentage points away from GDP growth, driven mostly by a growth in imports. The business press put the blame for that on the reopening of the West Coast ports after an extended work slowdown/work stoppage and the strength of the dollar.

A commenter on the Hot Air GDP post wondered how the fifth quarter of negative real GDP growth during the Obama Presidency, and the third since the Great Recession ended, compares to previous Presidencies. There are a few ways to look at that:

– 5 negative real GDP quarters (over 25 quarters) are tied with George W. Bush’s 5 negative quarters (over 32 quarters) and Richard Nixon’s 5 negative quarters (over 22 quarters) for the second-most among Presidents since 1953. Dwight Eisenhower, the first President whose term was entirely covered by quarterly GDP estimates, had 11 negative quarters (over 32 quarters), and 8 negative quarters over his Presidency’s first 25 quarters. Also, GDP shrank in each of the first 3 quarters of Gerald Ford’s Presidency following Nixon’s resignation.

– However, the economy under Obama has been historically weak, with the worst first-25-quarter performance of the 5 modern-era 2-term Presidents, plus the Nixon-Ford and John Kennedy-Lyndon Johnson administrations. Real GDP grew at an annualized 1.77% over Obama’s first 25 months, a far cry from Nixon/Ford’s 2.20% (2nd-worst combined administration) or George W. Bush’s 2.42%. Despite 8 negative quarters, Eisenhower’s economy saw an annualized 2.66% GDP growth in his first 25 months.

– While it is true that the Great Recession pushed annualized real GDP growth throughout George W. Bush’s Presidency down to 1.76% (or 0.01 percentage points below Obama’s 25-quarter mark), nominal (current-dollar) GDP grew at a far better rate during Bush’s 8 years even with the Great Recession and the “recession” of 2001 – +4.12% annualized for Bush versus +3.15% annualized for Obama.

– Lest one thinks taking out the Great Recession helps Obama in this category, guess again. Even though several earlier recoveries were broken up by recessions, each quarter that was 23 quarters after the end of every post-World War II recession had much better real GDP growth than the current 2.19% annualized post-Great Recession growth. The second-weakest recovery, from the 2001 “recession” clocked in with 2.79% annualized growth over the 23 quarters after the “recession” ended. The 1957-1958 recession, which had the second-largest post-WWII GDP drop behind the Great Recession (-3.7% to -4.3%), had an annualized growth of 4.62% in the 23 quarters following it despite the recession of 1960 being in the middle of that.

– There was only one other time there were 3 quarters of real GDP decline between recessions – between the recession of 1953-1954 and the recession of 1957-1958, with declines in the 1st and 4th quarters of 1956 and the 2nd quarter of 1957. Of note, the recession of 1957-1958 began in August 1957, 2 months after the third non-recessionary GDP decline.

Speaking of nominal GDP, for only the second time since quarterly GDP estimates began in 1947, it declined outside of a recessionary period, falling by an annualized 0.87%. The only other time that happened was the first quarter of 2014, when it fell by an annualized 0.80%.

By Steve Eggleston

If you haven’t noticed, I’ve been missing in action the last few weeks. I’ve just been burned out. One can say the economy is, at best, stagnant only so many times before running out of ways to say it.

Unfortunately for the country, but fortunately for my writing block, the Bureau of Economic Analysis released their third and final read of 4th-quarter GDP. While the BEA found a bit of inflation between the first and third reads to avoid making the deflation indicated in the first read official, they reduced the annualized real GDP growth from 2.6% to 2.2%, which is the same as it was in the second read.

The biggest contributor to that growth is spending on health care (no, not health insurance, health care itself). Annualized spending on health care rose by $39.9 billion in current (not adjusted for inflation) dollars, and $35.3 million in constant 2009 dollars, to, respectively, $2,048.8 billion (current) and $1,836.6 billion (constant 2009). The +0.88 percentage-point contribution to the change in real GDP is the highest on record going back to 1959, and is also the largest positive single-component contributor to GDP change last quarter. It also marks the third consecutive quarter increased spending on health care contributed the largest percentage-point increase to the personal consumption expenditures portion of GDP change.

As for health insurance, there are continuing strong indications that, contrary to the claims made at the time PlaceboCare was passed, spending on health insurance also skyrocketed. There are innumerable reports of skyrocketing premium increases. Further, the larger “financial services and insurance” component of personal consumption expenditures added another +0.17 points to GDP change, after adding +0.35 points in the third quarter. The BEA should issue its estimates of net spending on health insurance in 2014 late this summer, and I’d expect another performance like last year, when it increased by $7.4 billion to $145.1 billion

The report also contains further evidence that much of the job growth over the last year would have been derided as McJobs a decade ago. Increased spending on food services and accomodations contributed +0.30 percentage points to GDP change, the third consecutive quarter it contributed at least +0.21 percentage points. The last time that category contributed more to GDP growth was the 4th quarter of 1999, and the last time the current level of growth has been sustained for at least 3 quarters was the mid-1960s.

Addendum – Tom Blumer blows up the AP meme that the PlaceboCare McEconomy is “durable”.

By Steve Eggleston

Yesterday, the Bureau of Labor Statistics released the July jobs report, which says that on a seasonally-adjusted basis, the economy added 209,000 jobs with the unemployment rate ticking up 0.1 percentage point to 6.2%. That marks the 6th month in a row that there were at least 200,000 jobs added, the first time that has happened since 1997.

Regarding the unemployment tick-up, it is as much a factor of people looking for work again as it was people losing jobs. While 131,000 more people were working on a seasonally-adjusted basis in July than in June, and 209,000 people were added to the 16-and-older civilian noninstitutional population (not seasonally-adjusted), 191,000 more people were officially listed as unemployed.

The bad news – that 6-month surge appears to be as good as it gets. From American Enterprise Institute’s James Pethokoukis:

Overall, it was a bad report for the job metrics “dashboard” of Federal Reserve Chair Janet Yellen. As economist Robert Brusca points out, ” … we see that the unemployment rate has risen, the U-6 rate is up. The long-term unemployed share of total unemployment is up. Part-time workers are up, part-time workers looking for full-time work is a higher ratio. Marginally attached workers are greater in number. There are more discouraged workers.”

Then again, what can you really expect from an economy that has expanded by just 2.4% over the past four quarters, and a mere 2.2% over the five years of the expansion? Now there are signs wage growth could be ready to accelerate. And maybe the 4% GDP growth in the second-quarter means above-trend growth for the rest of the year. But as Barclays puts it, “Overall, we view this report as consistent with a return to more moderate job growth in Q3 14 after the Q2 14 surge.”

Indeed, this is the 63rd consecutive month, going back to May 2009, that the seasonally-unadjusted employment-population ratio (59.4% in July) has been below the same month in 1979. It also is, other than July 1982 and July 1983, the worst July between 1977 and 2010. Meanwhile, the labor force participation rate, at a seasonally-unadjusted 63.5%, is lower than every July since 1977.

On a related tangent, the first read of 2nd-quarter GDP, released on Wednesday, was that real (inflation-adjusted) GDP growth grew at an annualized 4.0% rate, with a comprehensive revision of GDP data going back to 1999 knocking up 1st-quarter GDP change from -2.9% to -2.1%. That growth is not supported by the monthly releases of data of various components of GDP, though those montly releases are not comprehensive.

That revision contains a hidden admission – the first 4 years/16 quarters of recovery from the Great Recession, covering the 3rd quarter of 2009 through the 2nd quarter of 2013, was not only worse than any post-World War II recovery, but also worse than the recovery from the 4-year-long recession that started the Great Depression. Tom Blumer’s analysis shows that the both the peak-to-peak real GDP change of 4.1% (from the 4th quarter of 2007) and the trough-to-peak real GDP change of 8.7% (from the 2nd quarter of 2009) are the worst performances on record.

The last year didn’t help the comparisons much. While the 2.4% growth since the 2nd quarter of 2013 allowed the 5-year peak-to-peak real GDP to grow by 6.6% since the Great Recession, which does beat the post Great Depression’s 4-year peak-to-peak estimated 4.3% real GDP growth, it is still signifcantly worse than the worst post-WWII peak-to-peak recovery, 10.9% in the 14 quarters after the 1953-1954 recession. Notably, the 16-quarter mark following the 1953-1954 recession had a GDP level that was 6.9% better than the pre-recession high-water mark, and that was the low-water mark of the 1957-1958 recession.

The 5-year post-Great Recession trough-to-peak real GDP growth of 11.4% is still short of the previous 2nd-weakest 4-year trough-to-peak trough-to-16th-quarter recovery, 12.8% GDP growth following the 2001 recession, and well off the 15.3% 5-year growth following the 2001 recession.

Revisions/extensions – While the trough-to-peak recovery following the 1953-54 recession was +13.8% at the 14-quarter mark, the 1957-58 recession knocked the trough-to-16th-quarter growth to +9.7%, lower than the 5-year trough-to-peak recovery from the Great Recession and higher than the 4-year trough-to-peak recovery from the Great Recession. However, the trough-to-20th-quarter growth following the 1953-54 recession was 17.8%.