I haven't done this in a while, but given today's troubling release, I thought I'd re-start my quarterly analysis of the US GDP numbers. The overall real GDP rate was an anemic 0.1% (annualized rate) in the 1st quarter. Perhaps more important, though, is what made up that 0.1%. GDP is basically composed of consumer spending + investment + government spending +/- net exports. Net exports is exports - imports. 3% growth is a healthy and reasonable rate for the US.
The consumer spending part of GDP actually grew about 2% (all rates here are annualized rates) in Q1'14. So, what happened? Government was pretty flat, by percentage, but both exports and investment were down.
Exports being down a little is probably not cause for concern. They have bounced up and down, and are heavily impacted by energy prices and currency exchange rates. So, while exports being down certainly isn't good, I'm not sure it's representative of a long-term problematic trend.
Investment was a -1.01, and half of that was a change in inventories. On the one hand, selling through inventory is good. It means that in the future, we'll need to produce more, and that people were buying up more stuff than we had produced. On the other hand, the general reduction in inventories AND in fixed investment could be taken as a sign that companies and individuals are not optimistic about their prospects in the future, and are neither investing nor building up inventories in anticipation.
Equally interesting is the breakdown of the +2.04% on the consumer spending side. It was almost all services, where purchases of goods were basically flat. The consumption of services is really not a bad thing at all, but one can't help but wish that more of that spending was on durable goods. Durable goods are things that count toward GDP now, but continue to be useful for years in the future. If people had all bought new washing machines last quarter, that would also mean that next quarter, most people would still have nearly new washing machines. Services are less likely to represent any sort of 'investment' or any accumulation of wealth. You can't borrow against the value of services you consumed last quarter, whereas if you bought a car, you now have an asset you can use.
On the whole, the GDP numbers are pretty sad. Overall growth was flat, and what growth there was was in the more 'transitory' types of spending. The things that are really good long-term signs, like more investment and more purchase of long-term goods, which are also the things that signal optimism, were somewhere between flat and down moderately.
The breakdown of contributions can be found here:
