Good news? Second Quarter GDP grows 4%


WASHINGTON, July 30, 2014 — GDP growth was 4% for the second quarter of 2014 according to The Bureau of Economic Analysis. This compares to a revised -2.1% growth in the first quarter.

Isn’t this finally some good news? Will this rate of growth continue for the remainder of the year?

The initial estimate of 4% growth will be revised four times before we know the actual number. The variation can be great. For instance in the first quarter of 2014 the estimates were -.1% then -1.0% then -2.9% and finally -2.1%. That’s a variation of almost 3%, meaning the first estimate of 4% for the second quarter could be revised substantially, likely downward, because inventory growth is just a “best guess” at this point. Of the 4% growth, inventory growth accounted for about 1.7%.

In addition, we should really look at the average for the first two quarters. In the first quarter the number was dragged down by very bad weather and a decrease in production of goods for inventories. The second quarter number was pulled up by consumption deferred in the first quarter due to weather and the rather large build-up of inventory. Taken together the economy probably grew at just over a 1% rate for the first half of the year.

How about GDP growth for the remainder of the year?

Most economists are forecasting growth will exceed 3% for the third and fourth quarters. That may be optimistic. Most cite the employment figures, in support of their growth estimates, because the economy has added in excess of 200,000 jobs in each month of this year.

The problem is that while there is a net gain in jobs, the economy lost full time jobs and gained part-time jobs. In June, for instance, there were almost 500,000 full-time jobs lost and about 790,000 part-time jobs gained, resulting in the reported almost 290,000 increase.

This means that the employment gains will not necessarily lead to growth in the economy.

The housing market is weakening and prices are falling. Mortgage rates have fallen because of the weak demand. While the hope is that the softer prices and lower rates will attract more buyers into the market, the reality is that with more part-time workers, there is not sufficient income for an individual to purchase a new home. Home sales will likely stay weak.

Both personal income and consumption expenditure are growing at a slow rate, meaning the consumer sector, which accounts for almost 70% of GDP, will not be able to fuel economic growth. In the government sector, the trend is still to hold the line on spending, so GDP won’t get help there. Business profits have been generally disappointing so far this year, especially in the retail sector, so business investment is also likely to stay low. There just doesn’t seem to be any sector ready to add growth to GDP.

The economy continues to be plagued by problems which limit growth. High taxes on corporate profits, over regulation of key industries and added cost burdens on business from laws like the Affordable Care Act, will continue to discourage companies from expanding. With the ease of receiving welfare and food stamp payments, individuals will continue to stay away from entering the workforce, so that the labor force participation rate continues to fall. The result is few new full-time jobs being created and fewer people seeking to contribute to the economy.

Since the recession ended GDP growth has averaged just over 2%. This is a horrible showing. For the five years after the 1981 recession ended GDP grew at almost a 5% rate. But the 2% growth rate will likely continue which keeps the rate just slightly ahead of population growth.

While we certainly welcome any good news about a growing economy, it is easy to see that one good quarter is not a trend. Until the government sets an environment where business has the ability and the incentive to grow, we will be mired in this low growth valley.

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  • Joe Seba

    with numbers! The GDP increased by 4% this quarter or maybe it
    didn’t. Since the numbers are unreliable and subject to apparently
    drastic change, why do we care? And what’s the point? If it indicates
    an expansion or contraction in over all economic activity then what’s
    the meaning of a -2.1% growth in the first quarter and an increase in
    the employment numbers during that period. I know you tried to
    rationalize that but the “reasoning” falls flat. The example of
    500,000 full-time jobs lost in June versus 790,000 increase in
    part-time jobs just doesn’t ring true. In fact, according to the BLS
    275,000 people were relegated to part-time positions during the month
    of June.

    home sales may indeed be weak (not because of the unemployment rate
    but because of the lack of growth in wages) they have actually
    increased and prices have gone up.

    spending in the second quarter has indeed increased over (at least)
    the last three previous years during this same quarter.

    how is it even remotely rationale to blame the lack of economic
    growth on “high corporate profits” when such taxes are at an all
    time low? As a matter of course businesses continue to grow and pay
    taxes. That’s what they do. I’d love to be in board meeting where the
    CEO says “never mind, if we earn an extra $100,000,000 this year
    $20,000,000 will go to taxes so don’t bother”.

    you obviously pay no attention to the stock market (or corporate
    earnings). The Dow Jones is currently achieving record improvements.

  • Plain Dealer

    This article is the big media complement to the obstructionist republican congress that is sacrificing the future of the American people to try to prevent the Obama Administration’s economic and social policies from succeeding. To put it another way: the wealthiest 1% that own Fox news, glenn beck, etc. are throwing every distortion they can at the American people to try to stop the resurgence of the middle class and the restoration of wealth from the American people in general that they’ve worked so hard to steal in the last 30 years.

    “There just doesn’t seem to be any sector ready to add growth to GDP.” The July 17, 2014 article in Bloomberg, World Oil, etc., titled “Europe Risks Losing 30 Million Jobs to U.S. Shale Boom” points out that “Chemical makers from Germany’s BASF SE to Brazil’s Braskem SA plan to invest as much as $72 billion in U.S. plants to take advantage of low-cost natural gas feedstock”. It goes on to say that “U.S. refineries are competing for market share and benefiting from margins that exceed those of European competitors by as much as $10 a barrel because of cheaper crude, Hermes Commodities said in a report today” The U.S. Shale Boom is happening primarily with the participation of regional and continental U.S. Oil drilling and production companies. not the big multinational oil corporations (EXXON, BP, Chevron)or their multinational banking buddies. That means that the work is financed by state and regional U.S. banks and local and regional U.S. citizens are employed to do the work. The continental U.S. railroads are upgrading and working around the clock to ship that oil to refineries while pipeline companies are working around the clock to try to design and install pipelines to handle some of the load. All of this money is going into the pockets of U.S citizens that then spend the money on homes, cars, and other basic necessities. All of that cost effective energy in the U.S. is making general manufacturing (not just the petrochemical and agricultural manufacturing industries) much more cost effective, so that manufacturing is returning to the U.S. And that wealth will also go into the bank accounts of working Americans and fund the pay-down of the U.S. debt!

    Oh no! What if a DEMOCRATIC president restores the republic and its citizens to financial health and disentangles us from useless warfare in the Middle East and around the world? Won’t that look bad for the Republicans? (who have done nothing but drive up our national debt and involve us in useless wars around the world?). You bet it will! Which is why the Republican congress has invented every lie they could to distort the truth of the rebirth of the American republic to the American people. The economy’s recovery is WELL underway, but the republican’s and their “Phd” experts will try to obstruct the truth right up until it is too obvious to deny any more (then they will invent new lies to try to take the credit for the Obama administration’s success). Cheers!