Why you should be scared by 1.7% GDP growth
Cattle await sale at the Burlington Livestock Exchange on August 23, 2012 in Burlington, on the plains of eastern Colorado.
Gross domestic product grew at a 1.7 percent annual rate in the second quarter. That’s a faster pace than first expected, so it sounds like good news, right? Well, don’t break out the champagne just yet.
Wells Fargo senior economist Mark Vitner has been saying for years that this is a recovery only a statistician could love. And, no offense to statisticians, but he’s still saying it today.
“Anytime the economy’s growing at less than a 2 percent annual rate, it’s really nothing to crow about,” he says.
Beating expectations isn’t that great when expectations are so low to start with. And to add insult to injury, today’s GDP numbers only look high when compared to first quarter GDP, which was revised down.
“First quarter was actually lower than we had thought, so we’re really not much better off today, given that we started at a lower spot than we had thought,” says Randy Kroszner, a professor of economics at the Booth School of Business in Chicago.
Still, there are some bright spots in GDP-land. Consumer spending wasn’t voracious, but it led the way. There was also pretty strong growth in business investment. And while the economy as a whole faces headwinds, some sectors are doing fine. Just call Dodge City, Kansas, where agricultural exports are helping drive the economy.
“We currently are processing between 60,000 and 70,000 head of cattle a week,” says Dan Schenkein, president of the Dodge City Chamber of Commerce. He says between beef and grain, nobody wants to get out of Dodge these days.
“Essentially anybody looking for a job can work in very well paying positions here in our community,” he says.
Dodge City may be an outlier in that respect. Economists say current GDP growth isn’t enough to bring unemployment down. But some expect economic growth to ramp up later this year.