A 4.0% annual pace of real GDP growth in the fourth quarter. As has been the case for the past two and a half years--ever since the end of the recession--the fourth quarter saw lousy news about employment growth, and good news about productivity growth. The only uncertainty over the past 2 1/2 years has been whether the productivity growth news will be good or great, and thus whether the output growth news will be poor or good. This past quarter the output news was slightly good:
Christopher Swann: Financial Times: ...Economists said the breakdown of the GDP figures, by contrast, pointed to steady but unspectacular growth. "We should not forget that the best outcome for the US economy would be a sustainable growth rate of between 3.5 and 4 per cent and we appear to be on course for that," said Steve Cochrane, director of US research at Economy.com, the consultancy.
The pace of consumption slowed slightly more abruptly than had been expected, with the annualised rate of increases declining from 6.9 to 2.6 per cent. Economists said this was likely to be lifted by the effect of tax cuts in the first half of the year. Nevertheless, there were ominous signs that the financial position of consumers was weakening. Real personal disposable income fell 0.5 per cent and the savings ratio slid from 2.3 to 1.5 per cent - near a record low and well short of the long-run average of 7.6 per cent. Economists have been hoping that a strengthening labour market would buoy consumer finances. But although the pace of redundancies has slowed, there is little evidence that companies are ready to hire significant numbers of new staff.
Businesses continued to invest at a brisk pace, with non-residential investment climbing 6.9 per cent, against 12.8 per cent in the third quarter. The impetus came from the 10 per cent rise in equipment and software spending.
The main reasons the figures came in below expectations were a smaller contribution than expected from inventories and a slower rise in government spending. This slowed from 1.8 to 0.8 per cent, having risen at an annualised 7.4 per cent in the second quarter of last year. Inventories contributed just 0.6 percentage points to the annualised growth rate.
As Christopher Swann points out, the lousy labor market affects you even if you don't lose or fear you will lose your job. Wage and salary incomes are lagging far behind output growth.
Posted by DeLong at January 30, 2004 08:38 PM | TrackBack | | Other weblogs commenting on this postCould one reasonably make the case that business investment is "brisk" because the Bush tax cuts to those with higher incomes have gone into savings and thus channeled into investments of some kind or another?*
If employment is flat, will this trend lead to even more unutilized productive capacity? Then what happens?
*due to higher propensity to save.
Posted by: bobbyp on January 30, 2004 09:16 PMThanks for the great site, Dr. Delong. I'm learning, but still in the shallow end of the pool.
Since people my age can't realistically anticipate relying on social security when we retire, I've started direct-deposit investing in IRAs and such. Considering that many people have adopted the same approach, it seems to me that the rates of personal savings and discretionary income will become more and more significant in calculating the health of the economy in the long term. Just a thought. Does anyone have any suggestions for readings in economics for the layman?
Thanks,
Steve
"Real personal disposable income fell 0.5 per cent and the savings ratio slid from 2.3 to 1.5 per cent - near a record low and well short of the long-run average of 7.6 per cent."
Wonderful... How could things look any rosier?
Posted by: Jean-Philippe Stijns on January 30, 2004 10:34 PMThis is off topic, but Uggabugga has fingered Samuelson as the author of that horrible WaPo editorial on the job market from a couple of days ago, by means of textual comparison.
Posted by: marky on January 30, 2004 10:55 PM"A 4.0% annual pace of real GDP growth in the fourth quarter. As has been the case for the past two and a half years--ever since the end of the recession--the fourth quarter saw lousy news about employment growth, and good news about productivity growth. "
Brad, the two are tied inextricably together. All that IT spending from 3, 4 years ago is finally paying off in productivity terms as managers no longer have the excuse of a clear boom to mask bloated payrolls. So aggregate head-counts are remaining stable even as a massive shift in _what_ the employed are doing is taking place.
I'm not talking about the "lump of labor" fallacy, either. The rates of job creation in some fields and job destruction in others are equal for the moment only due to the massive remaining capacity for easy productivity gains, not some fallacious zero-sum limit to the potential for jobs. The second-order effects from the fields creating jobs will result in aggregate job growth in due course, even as the productivity gains on the manufacturing side put a deflationary bias into the system. Final result: rising real standards of living.
Bernard Guerrero
Posted by: Bernard Guerrero on January 31, 2004 05:28 AM
bobbyp -- read the entire report.
the personal savings rate fell to a near record low of 1.5%.
I posted on this the other day -- your theory that
tax cuts leads to a increase in savings and an increase in investments has beeen disproved by the facts. There is nothing worse than a beautiful theory ruined by the facts.
Before we stated the supply side experiment total savings -- personal & business normally was about 20% of GDP. Since 1980 savings as a share of the economy has steadily fallen except for a reversal in the 1990s when economic policy shifted from supply-side to Rubinomics. Right now savings as a share of GDP is now 13.3%%-- near the all time record low of 12.9% in the first Q of 2003.
Moreover, the federal deficit now absorbs about 25% of total domestic savings. Prior to 1980 it
normally absorbed less than 1% of domestic savings -- yes, I know, it rose to a higher % in recessions.
What does it take for you supply-side advocates to recognize that the facts have completely disproved your theory about savings?
Posted by: spencer on January 31, 2004 06:25 AMUnless I'm mistaken about who bobbyp is, I don't think he's a supply-sider. Anyway...
What I'm wondering is whether this trend of good productivity+low employment in Q4 has anything to do with retail trends: employers not hiring additional personnel for the holiday rush, but doing more business at that time. A comparable trend in the non-retail sector would be bosses pushing for year-end revenues without addiional hiring (I know that happened at my office). It's a pretty speculative theory based on only one real datapoint, but I wonder if it's plausible?
Posted by: JRoth on January 31, 2004 07:17 AMBernard writes:
"The second-order effects from the fields creating jobs will result in aggregate job growth in due course, even as the productivity gains on the manufacturing side put a deflationary bias into the system. Final result: rising real standards of living."
I love this...I have been hearing the _exact_ same argument since February 2001. Job growth is just around the corner. Uh-huh. Dunno if you got that memo, but the American economy is creating jobs like gangbusters and has been for years...in Shanghai and Bangalore. Who exactly is going to create jobs in the U.S.?
Posted by: David on January 31, 2004 08:22 AMDavid, wouldn't you love to have had those promises in a form in which you could collect on? If promises of 'next quarter will be great, just you wait and see' were bankable, I'd have a tidy stash in my account right now. Instead of watching my pennies in February, I'd be planning a winter get-away vacation.
The one thing which really bothers me is that I can't figure out how to make money from this. There are millions and millions of Republican voters out there. They believe this stuff, and I could sleep very easily, knowing that I had taken their money. Drat.
Posted by: Barry on January 31, 2004 10:09 AM"The one thing which really bothers me is that I can't figure out how to make money from this."
Well, assuming you're actually as silly as you're claiming you are, the answer is obvious. If I'm wrong and this is a period of job destruction rather than a shift in employment patterns, you just need to short the crap out of low-end retailers. Demand for all but luxury goods for the lucky employed will collapse soon enough. Hypothecate away, Smedley. I know where you can borrow some Wal-mart shares real cheap. :^)
Bernard Guerrero, doing fine...
P.S. "Dunno if you got that memo, but the American economy is creating jobs like gangbusters and has been for years...in Shanghai and Bangalore. Who exactly is going to create jobs in the U.S.?" Lump-of-labor, David. Google it up, I'm pretty sure Krugman has said something about it or other...
Posted by: Bernard Guerrero on January 31, 2004 05:29 PMA brute kills for pleasure. A fool kills from hate.
Posted by: Salisbury Judd on March 17, 2004 11:18 PMHave no friends not equal to yourself.
Posted by: Rosenbloom Phil on May 2, 2004 03:06 PMA good friend can tell you what is the matter with you in a minute. He may not seem such a good friend after telling.
Posted by: Neufeld Josh on May 3, 2004 02:16 AMIt's a sign of mediocrity when you demonstrate gratitude with moderation.
Posted by: Camerata Julie on June 30, 2004 06:58 AM