News on the economy today and it’s looking increasingly like the happy surprises which characterized the end of 2011 and the beginning of 2012 were aberrations. We’re back to Anemia Now!, unfortunately:
The economic output of the United States grew at an annual rate of 2.2 percent in the first quarter of the year, easing from the prior quarter’s growth rate of 3 percent but maintaining what many economists have started to call a “sustainable” pace of recovery.
The economy has been growing, though painfully slowly, since the second half of 2009, and the recovery accelerated throughout all of 2011. Early this year, economists forecast a weaker showing for the first quarter, and many revised their numbers upward in the past few weeks as several economic indicators came in better than expected.
Still, mixed signals continue to cloud the picture, raising fears among some economists of a repeat of last year’s spring slowdown: shipments of durable goods increased last month, but new orders showed their steepest drop since January 2009 (mostly because of a decline in aircraft orders); the trade balance improved but job growth weakened and new unemployment claims have risen. …
In the long term, the Fed said it expected unemployment to fall very slowly, remaining as high as 6.7 percent by the end of 2014. “The committee expects economic growth to remain moderate over coming quarters and then to pick up gradually,” a Fed statement said.
Growth of 2.2 percent is too slow to make up for lost ground. “I don’t think the issue is whether or not the growth rate is sustainable,” said Steven Blitz, chief economist of ITG Investment Research. “I think the question is whether the growth rate that’s sustainable is acceptable — politically and socially acceptable.”
Before getting to Blitz’s comment, which I think is the central overarching question (at least politically) of this new economic era, let’s take a look at why, exactly, the economy is still so damn lethargic. Alan Krueger, head of the Council of Economic Advisors, the economic brain-trust of sorts to the President, released a statement through the White House’s blog, saying that — wouldn’t you know it — Big Government is to blame. Lack of Big Government, that is:
Overall GDP growth was weighed down by reduced spending in the government sector, however. National defense expenditures, one component affecting today’s report, fell by 8.1 percent in the first quarter, according to the Bureau of Economic Analysis. Government spending across all levels subtracted 0.6 percentage point from overall GDP growth. The latest report continues a pattern of moderate growth in the private sector components of GDP and contraction of the government components of GDP. …If only the private sector components of GDP are considered, GDP grew by 3.5 percent in 2012 Q1.
Krugman concurs, calling ours an era of “unprecedented austerity.”
Here’s what’s problematic, though — at least from a liberal’s perspective — about making a big deal about government shrinkage hurting the economy; according to Karl Smith, the biggest drag is coming from reduced military expenditures:
Federal Government: Subtracted 0.46 pts. SMACK. That is much bigger than expected and almost all comes from military drawdown. Two big quarters in a row of shrinking military expenditures.
State and Local: Subtracted 0.14. Surprisingly high and looks like its coming from lack of highway investment. What the political endgame on that is I don’t know.
Of course, this doesn’t mean that you still couldn’t advocate more government spending but specify that it be directed somewhere other than the military sector. But it’s just worth keeping this in mind — big government and big military often go hand-in-hand. It was government spending on WWII that ended the Great Depression, after all.
Anyway, turning back to Steven Blitz’s comments on how we’re about to find out what’s “acceptable.” Without getting into the details, I don’t think what we’re experiencing right now is likely to change anytime soon — at least not for the better (we’ve got other financial panics to look forward to, of course; and the eurozone may yet kill us all). So absent a real pseudo or full-blown revolutionary movement in the US, this new normal is going to be accepted sooner or later. The real question for 2012 is whether people are going to accept it sooner and reelect President Obama; or later and delay the inevitable long enough so President Romney gets his share of the collective tantrum that’s defined much of Obama’s first term.
We live in cheery times.