Price Rises Pick Up as GDP Expands (Below Expectations)

[Snellius]

April 29 — WASHINGTON (Reuters) - The U.S. economy grew steadily but less robustly than anticipated during the first quarter of this year, the government reported on Thursday, while inflation added momentum that may be worrisome for Federal Reserve policymakers.

The Commerce Department said gross domestic product, or GDP, that measures total output within U.S. borders expanded at a 4.2 percent annual rate in the January-March three-month period - well under the 5 percent rate forecast by Wall Street economists. It followed growth at rates of 4.1 percent in the fourth quarter and a sizzling 8.2 percent in the third quarter last year.

But a key measure of inflation pressures based on personal consumption expenditures - the PCE price index excluding food and energy that Fed Chairman Alan Greenspan is known to monitor - virtually doubled. The price gauge climbed at a two percent annual rate after gaining 1.2 percent in the fourth quarter and 1 percent in the third quarter.

http://abcnews.go.com/wire/US/reuters20040429_157.html

[robcon]

1. Employment/Unemployment is the key.

GDP is too 'gross' a measure. Let's see fewer people unemployed. No indication yet of any progress on unemployment.

[Ready4Change]

2. Behold the glory of Reaganomics.

It took Bush 3 years, but he's finally got the engine of inflation, unemployment, massive government debt, and a stagnant economy roaring along.

Nice work, Dubbya.

[ProfessorGAC]

3. They're Still Using That 8.2% Number?!?!?

That number is flat out wrong. It was miscalculated back in last October and was not true then, and it's not true now. The actual nominal growth rate was an annulaized 6.22% in 3Q03, not 8.2%! Good, but not spectacular.

Most of the news organizations did stories on the revised numbers back in November, but typically, on page 17, with 24 point headline, as opposed to the original reports on Page 1 with 3" banner headlines.

Any economist who expected 5% in the last quarter (per the story) needs to be fired. That person obviously knows nothing about what's really going on.
The Professor

[Tempest]

4. And where did the growth come from in the 3rd quarter?

Government spending.

Once Congress puts the brakes on spending, and they will have to (and soon), the economy is going to go into a tailspin.

Consumer spending is barely moving, and since most is being paid for by increasing consumer debt, it'll have to hit the brakes soon too.

[ProfessorGAC]

6. Correct As You Could Be, Tempest

The Professor

[Frodo]

7. A frequent mantra. But untrue.

Government spending.
Link please? The report said Government spending went up 2%

Consumer spending is barely moving
Really? The economic reports say it's been rising steadily since about January of '02 and is now at about 6% year-over-year. Watch for the report out (I think) tomorrow and get back to me (but remember it's a month-over-month number and you have to annualize it).

and since most is being paid for by increasing consumer debt

True. Very true. And it's a problem from a personal finances standpoint, but it IS how economies grow. It's all based on spending more than you make.

Don't we WANT people to save and not borrow to spend? Well... in the words of nobel-prive-winning-economist/president Jed Bartlet? "Sure, but we want you to do it when someone else is President".

[ProfessorGAC]

10. You Are Awfully Quick To Ask For Links

But, i don't see you proferring anything but anecdotal evidence that supports your thesis.

You can access SAUS from most university libraries. Do some research before you accuse others of being wrong again.
The Professor

[Tempest]

12. There's a reason why he can't provide a link

http://www.washingtonpost.com/ac2/wp-dyn/A28252-2003Nov11?language=printer

Confounding President Bush's pledges to rein in government growth, federal discretionary spending expanded by 12.5 percent in the fiscal year that ended Sept. 30, capping a two-year bulge that saw the government grow by more than 27 percent, according to preliminary spending figures from congressional budget panels.


That's a hell of a lot more than the 2% he threw out, isn't it?

[Frodo]

14. I'm sorry... were we suddenly talking about fisacal 2003???

You know... the year they started a war in Iraq? Why yes! Supprisingly... government spending DID go up a great deal that year. But you were refereing to the Q1 figures that were just released (or did you fail to point out the change in topic??) (edit - ah, yes you did identify it - I missed it). Since they are compared to the new higher spending they really don't change all that much.

That's a hell of a lot more than the 2% he threw out, isn't it?

Take a look at the report I linked below. Government spending increased 2% for the quarter, so it didn't really account for the GDP figure, did it? Especially since consumer spending accounts for 70-80% of GDP. In fact, "government spending" on the BEA GDP report has averaged an increase of about 1.25% for the last three quarters.

On edit - Even if we are talking about just Q3 2003 I think you'll see that government spending did not account for an outlandish portion of the reported 8.2% growth.

[Tempest]

17. Well DUH!

Read the subject line of my original post again, the one you responded to.

Once again, you're not on the same page.

So your figures are meaningless.

[Frodo]

18. Caught me while I was editing that post. But you're still wrong.

Here's the text from the Q3 2003 report (emphasis mine):

Real federal government consumption expenditures and gross investment increased 1.2 percent in
the third quarter, compared with an increase of 23.5 percent in the second. National defense decreased
1.3 percent, in contrast to an increase of 41.9 percent. Nondefense increased 6.5 percent, in contrast to a
decrease of 5.0 percent. Real state and local government consumption expenditures and gross
investment increased 2.1 percent, in contrast to a decrease of 0.8 percent.

http://www.bea.gov/bea/newsrelarchive/2003/gdp303f.htm

The monster Q3 number is not accounted for by saying "government spending"

Sorry for the miscommunication on the previous posts. Be well. :-)

[Frodo]

16. I give links. I don't just send people to the library.

Some of us have to work for a living.

On this topic it was from my quickest source to the economic report - http://www.briefing.com/Silver/Calendars/EconomicReleases/gdp.htm
which put the "government" portion at 2%


I will, however, step back and say that I've since read through the longer text on the BEA site:
http://www.bea.doc.gov/bea/newsrel/gdpnewsrelease.htm

And DO see substantial increases in government spending. Not, hoewever, enough to make the claim that it accounts for the good numbers we've been seeing. "It's all government spending" is a way of saying "people really aren't spending any money, it's all smoke and mirrors" (which he does go on to say anyway). This is incorrect. The numbers over the last three reported quarters do reflect substantial increases in consumer spending.

[Tempest]

11. The question is, what are you talking about?

I'm talking about the 3rd quarter of 2003, as I clearly stated in the subject line.

http://www.washingtonpost.com/ac2/wp-dyn/A28252-2003Nov11?language=printer
Confounding President Bush's pledges to rein in government growth, federal discretionary spending expanded by 12.5 percent in the fiscal year that ended Sept. 30, capping a two-year bulge that saw the government grow by more than 27 percent, according to preliminary spending figures from congressional budget panels.


I have no idea what you're talking about, but you're definitely not on the same page.

[Frodo]

5. Ahh Professor, you're back.

Hadn't seem you around for awhile.

Do you have a link to that 6.22% number?

I remember when the advance number came it at 7.2% and you swore up and down that they had left a critical measure out because it hadn't been reported yet... but you knew what it was and the GDP would definitely be revised downward the next month.

Then they revised it upward the next month and you expressed confusion that since the "missing" data had been available you could't understand how they hadn't included it.

Then the final number came in still at 8.2% and I don't remember hearing from you.



The actual nominal growth rate was an annulaized 6.22% in 3Q03, not 8.2%!

Surely you are aware that the GDP report is for "real" GDP and not "nominal"? Net of a deflator? I think the 3Q claim was for a chain-weighted deflator of 1.6%. That would put "nominal GDP growth" at more like 9.8% for the quarter.

[ProfessorGAC]

8. You Can't Access The Database I'm Linked To

I have a SAUS subscription. It's very expensive (more than $100 per month). So i can't link to it, but that's just the raw data.

Here's what happened: They projected a trade deficit, based upon the current trends, but they reported the GDP growth, using that estimate. When the trade deficit ended up increasing by 60% from the average of Q1 & Q2, it made the estimate completely invalid.

You can do your own Lexis/Nexis search if you wish, but i know for sure the WSJ, Chicago Tribune, and Washington Post all had stories about the revised values which were released just before Thanksgiving.

Also, you are incorrect about the reports as being real growth. It is, indeed, nominal growth that is reported to the public. All you have to do is look at the change in gov't spending, which is availble to anyone, SAUS subscription or not, to see that the change in gov't spending went up in nominal dollars by an amount that accounted for >80% of the change.

Your math is backwards in your example, as well.

Lastly, if you don't want to believe that i know more about economics than the buffoons working in Treasury, that's your right. But, i will not be baited into a fight over this. I know what i know, and you can decide whatever you want.
The Professor

[Name removed]

13. Deleted message

Message removed by moderator. Click here to review the message board rules.

[davhill]

9. Would the output of a company

That has its factories in Mexico, its subsidiaries in Malaysia, its Tax Headquarters in Bermuda, and a majority of its stockholders in Saudi Arabia still be considered a part of the US GDP?

[Frodo]

15. No.

eom