Lost in the shuffle: Q1 GDP at 1.8%

posted at 3:35 pm on May 9, 2011 by Ed Morrissey

Ten days ago, the Commerce Department released the latest evaluation of American economic growth, which came in at a paltry 1.8%, a steep drop from the unspectacular 3.1% in the fourth quarter of last year. By the time the weekend ended, that news got understandably swamped out by the successful military operation that killed Osama bin Laden.  But even from Rome, I was surprised by the lack of attention that it drew before Sunday night, especially since the media showered the White House with favorable coverage of the previous quarter’s results.

In my column for The Week, I take a look at the report and what it says about Obamanomics — and the portents for Barack Obama’s re-election:

The first-quarter GDP growth rate plunged to 1.8 percent, a steep change from the previous quarter’s middling 3.1 percent growth rate. Even more ominously, imports increased by 4.4 percent vs. a 2010 fourth quarter decrease of 12.6 percent, and exports hit their lowest number (a 4.9 percent growth rate) since mid-2009. Meanwhile, personal consumption expenditures dropped from fourth quarter’s 4 percent growth rate to 2.7 percent.

The real story, though, comes near the end of the April Commerce Department report. Federal government spending dropped 7.9 percent after staying nearly even in the fourth quarter. National defense spending dropped 11.7 percent. That drop in spending explains why previous growth rates had been artificially inflated. It also explains why jobs have not returned.

Actually, it gets even worse than that. After accounting for inventory growth, real final sales of domestic product (GDP minus changes in domestic inventories) was 0.8 percent — barely above recession level. This indicates that even though sales of durable goods dropped from a 21 percent increase in the fourth quarter to 10 percent in the first quarter of 2011, businesses still overbought — which will negatively impact second-quarter orders and growth.

Obamanomics has run out of cash, and House Republicans are unlikely to give Obama another ATM card this year.  The White House argument that a two-year spending spree would kick-start private growth has been shown to be entirely incorrect, and now we have even greater debt than we did before Porkulus.   We are left with real growth that just barely exceeds a flat line, and given the regulatory and investment environment of the present, very little indication that we will see a sudden return to the 4-5% real growth range needed to get a massive change in unemployment.

Under those circumstances, Barack Obama’s chances of re-election appear rather dim.  One might think that such a stall in the economy might interest a few people, especially given the political impact of near-zero growth outside of artificial stimulus in the ninth economic quarter of Obama’s presidency.  Perhaps the media can spend a little time to discuss the impact of this report now that the OBL mission has been thoroughly dissected, but it doesn’t take a “gutsy call” to predict that the White House will keep feeding the media more on the OBL story to keep attention away from the sputtering economy.

Update: The Wall Street Journal notes even more bad news from the housing market, where home values dropped significantly in Q1, especially in March:

Home values fell 3% in the first quarter from the previous quarter and 1.1% in March from the previous month, pushed down by an abundance of foreclosed homes on the market, according to data to be released Monday by real-estate website Zillow.com. Prices have now fallen for 57 consecutive months, according to Zillow.

Last year, the housing market showed signs of improving as price depreciation slowed in some markets and stabilized in others. In response, a number of economists began forecasting that housing would hit a bottom in late 2011, then begin to recover. But the improvements, spurred by federal programs that gave buyers up to $8,000 in tax credits, proved fleeting. Sales collapsed when the credits expired last summer, and prices in many markets have been falling ever since.

While most economists expected sales to decline after tax credits expired, the drag on the market has been greater than many anticipated. “We expected December and January to be bad” as the market reeled from the after-effects of the tax credit, said Stan Humphries, Zillow’s chief economist. But monthly declines for February and March were “really staggering,” he said. They indicate “a reflection of the true underlying demand, which is now apparent because most of the tax credit is out of the system, and it’s being completely overwhelmed by supply.”

Mr. Humphries now believes prices won’t hit bottom before next year and expects they will fall by another 7% to 9%. Other economists revised their forecasts. In April, the chief economist at mortgage company Fannie Mae, Doug Duncan, said home prices in the second quarter would be 5.3% lower than the previous-year period, down from his earlier estimate of a 2.6% decline.

The housing market will trail rather than lead the recovery, as the main problem in that market is a lack of qualified buyers, thanks to high unemployment.  Given the GDP numbers, we are a long way away from producing enough qualified buyers to put a dent in inventories.

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House Republicans are unlikely to give Obama another ATM card this year.

Unless someone starts screaming that the sky is falling and those filthy taxpayers are raping banks all over the place.

Then they fold just as they are going to fold on the debt limit. The same reasons and scaremongering that broke the GOP over the government shutdown, and that has them surrendering on the debt ceiling before it even comes up, is why they will also give in on whatever cash Obama might want.

sharrukin on May 9, 2011 at 3:42 PM

I was surprised by the lack of attention that it drew before Sunday night, especially since the media showered the White House with favorable coverage of the previous quarter’s results.

Really? Were you really surprised, Ed?

catmman on May 9, 2011 at 3:42 PM

All is well, I killed obl

cmsinaz on May 9, 2011 at 3:43 PM

Cue the theme song to “The Endless Bummer, Pt II”!

pilamaye on May 9, 2011 at 3:44 PM

There must be a point where people favoring the Fair Tax as opposed to the flat tax would have to consider the growth or lack of growth in the GDP. A declining economy with fixed costs would command an increase of the fair tax when the economy is in decline.

fourdeucer on May 9, 2011 at 3:45 PM

Only $3.50 a gallon. Woohooo!
Only 9% unemployment. Woohooo!
Only $4.00 for a lb of butter. Woohooo!
Only 1% interest on IRA CDs. Woohooo! *

This is the meme. The MSM will stick to it.

*comment from another thread

catmman on May 9, 2011 at 3:46 PM

but Joe Biden predicted 7% GDP growth annually for as far as the eye could see…..what gives? Didn’t the economy get the memo?

ted c on May 9, 2011 at 3:47 PM

The housing market will trail rather than lead the recovery, as the main problem in that market is a lack of qualified buyers, thanks to high unemployment. Given the GDP numbers, we are a long way away from producing enough qualified buyers to put a dent in inventories.

No.

The problem is houses cost too much and nobody wants to overpay and get burned. When prices fall back to reasonable levels people will buy. Until then smart** money will continue to not touch r/e with a 100 foot pole, let alone a 10 foot pole.

** Of course plenty of stupid money has and always will flow to bad investments.

angryed on May 9, 2011 at 3:47 PM

Housing is dead through 2012, and dead in NV/FL past that. I think we’re at the height of the Obama recovery now and we’ll see how strong the economy is by Q4.

It’ll be a talking point, but no one will care about OBL by this fall.

IR-MN on May 9, 2011 at 3:52 PM

Isn’t this par for the course for western democracies at the moment? I mean, Germany’s economy grew by 1% in Q1 and they’re being talked about as having a “strong start” to the year. If the largest, most robust European economy is growing at %1 a quarter, how much more do you guys expect the US to grow?

In a perfect world, with the perfect republican president, how much would the economy be growing right now, given the global situation??

ernesto on May 9, 2011 at 3:53 PM

Ed,

Not so much lost in the shuffle here. I am guessing it doid not make it through the transatlantic QRM to Italy.

Still in all, it’s good to have you and the missus back!

The War Planner on May 9, 2011 at 3:55 PM

ernesto on May 9, 2011 at 3:53 PM

LOL Ernie. In only 2 short years you’ve gone from YES WE CAN to, hey things could be worse you know.
Pathetic doesn’t even begin to describe it.

angryed on May 9, 2011 at 3:56 PM

In a perfect world, with the perfect republican president, how much would the economy be growing right now, given the global situation??

ernesto on May 9, 2011 at 3:53 PM

that sure is a lot of words trying to convince us of how this is not Obama’s fault. Trouble is homey that there is no perfect world, no perfect republican president….we have what we have and he gets the credit and the blame. ah well.

ted c on May 9, 2011 at 3:56 PM

In a perfect world, with the perfect republican president, how much would the economy be growing right now, given the global situation??

ernesto on May 9, 2011 at 3:53 PM

..by perfect, I believe you mean competent. Therefore, the answer would be a lot more than with this Pantload and his Clown Troupe who have saddled us with crap like the failed bailout that smothered us in debt.

The War Planner on May 9, 2011 at 3:58 PM

Hmmm… My post about Chile’s 6+% growth disappeared into the ether.

Fallon on May 9, 2011 at 4:01 PM

If the largest, most robust European economy is growing at %1 a quarter, how much more do you guys expect the US to grow?

Ernie,

Your lack of economic knowledge shows once again. The economy isn’t growing 1% a quarter. It is growing at an annualized 1% during the quarter.

And Germany’s GDp growth is well over 1%. Numbers come out this week and the expected number is 4.5% vs. 1.8% of Obama’s America. Come on man, get a freaking clue before posting.

angryed on May 9, 2011 at 4:01 PM

Chile’s economy may expand more than 6 percent this year after data for March showed the country is on “a robust growth trend,” Finance Minister Felipe Larrain said.

Chileans are feeling the benefits of growth of almost 10 percent in the first quarter, with real salaries rising “significantly,” Larrain told reporters today in Santiago.

Fallon on May 9, 2011 at 4:03 PM

I question the timing……

of the Pakistan raid.

Vashta.Nerada on May 9, 2011 at 4:04 PM

“The White House argument that a two-year spending spree would kick-start private growth has been shown to be entirely incorrect, and now we have even greater debt than we did before Porkulus…”

I think their entire Marxist/Socialist/Leftist/Liberal ideology has been proven to be entirely incorrect and a complete failure…

… The only thing to do now is double down, hit the gas, and blow the whistle as we go over the edge of the cliff!!!

/

Seven Percent Solution on May 9, 2011 at 4:06 PM

Unexpectedly unexpected!!!

/

Sekhmet on May 9, 2011 at 4:06 PM

1.8%. Is that the Q1 GDP or Obama’s projected approval rate on Nov. 1, 2012?

JimP on May 9, 2011 at 4:12 PM

Yes, we never could. You fell for a Muenchhausen.

Schadenfreude on May 9, 2011 at 4:15 PM

I question the timing……

of the Pakistan raid.

Vashta.Nerada on May 9, 2011 at 4:04 PM

One day Obama will run out of muslims to bomb…

the_nile on May 9, 2011 at 4:15 PM

Ed -

Surely you are not suggesting that MSM is comprised of unethical “journalists” who would try to surpress this news.

I’m sure there are some positive outcomes – people are buying less food, which helps solve the obesity problem and buying less gas so fewer are killed in traffic accidents and there’s less pollution. Our friends in the media will advise ue of the benefits.

bw222 on May 9, 2011 at 4:15 PM

“Yes, we can”

“Leaning forward”

“Winning the Future, aka WTF”

“Leading from Behind”

All to be proud of, if you are a leftie.

Schadenfreude on May 9, 2011 at 4:16 PM

I question the timing……

of the Pakistan raid.

Vashta.Nerada on May 9, 2011 at 4:04 PM

Everything Barack Obama and Eric Holder do is either based on race or politics.

bw222 on May 9, 2011 at 4:17 PM

Fallon on May 9, 2011 at 4:03 PM

That’s because Chile has a privatized version of social security and Medicare. And so everyone dies at 66 (per the left’s attack ads) which means the country doesn’t have to spend any money taking care of its old people.

angryed on May 9, 2011 at 4:19 PM

Didn’t this news come out around the time the OBL operation had been released? Same thing for those job numbers and unemployment %. When the administration is waving one hand in front of you, watch what the other hand is doing instead.

Weebork on May 9, 2011 at 4:21 PM

Isn’t this par for the course for western democracies at the moment? I mean, Germany’s economy grew by 1% in Q1 and they’re being talked about as having a “strong start” to the year. If the largest, most robust European economy is growing at %1 a quarter, how much more do you guys expect the US to grow?

ernesto on May 9, 2011 at 3:53 PM

If the United States were growing at the average rate of the other most advanced Western economies, that means we’d be performing relatively worse because our population is growing faster. As for Germany, it’s expected to experience a faster rate of GDP growth this year than the United States. The US economy is essentially stagnating as it, at best, is barely keeping up with population growth.

DKCZ on May 9, 2011 at 4:22 PM

Morrissey

The White House argument that a two-year spending spree would kick-start private growth has been shown to be entirely incorrect, and now we have even greater debt than we did before Porkulus.___Under those circumstances, Barack Obama’s chances of re-election appear rather dim.

Morganthau, Secretary of Treasury

I want to see people get a
job. I want to see people get enough to eat. We have never made good on our promises. …
I say after eight years of this Administration we have just as much unemployment as when
we started. … And an enormous debt to boot.

FDR then got elected to third and fouth terms.

burt on May 9, 2011 at 4:23 PM

Obama thinks spending more money on gas, is good for the economy…there is no doubt, on of the most economically challenged people ever elected to a national office.

right2bright on May 9, 2011 at 4:24 PM

real final sales of domestic product (GDP minus changes in domestic inventories) was 0.8 percent

That’s the like, the real number, right there.

dogsoldier on May 9, 2011 at 4:25 PM

Isn’t this par for the course for western democracies at the moment? I mean, Germany’s economy grew by 1% in Q1 and they’re being talked about as having a “strong start” to the year. If the largest, most robust European economy is growing at %1 a quarter, how much more do you guys expect the US to grow?

ernesto on May 9, 2011 at 3:53 PM

“Obama is doing a great job – he’s got us only doing as bad as everyone else.”

I like that as a campaign slogan.

Monkeytoe on May 9, 2011 at 4:26 PM

And what would the Q1 change in GDP if they calculated inflation the old way?

agmartin on May 9, 2011 at 4:26 PM

That’s because Chile has a privatized version of social security and Medicare. And so everyone dies at 66 (per the left’s attack ads) which means the country doesn’t have to spend any money taking care of its old people.

angryed on May 9, 2011 at 4:19 PM

Yup, but who you going to believe, Chile’s growth or our lyin’ Democrats?

Fallon on May 9, 2011 at 4:29 PM

Isn’t this par for the course for western democracies at the moment? I mean, Germany’s economy grew by 1% in Q1 and they’re being talked about as having a “strong start” to the year. If the largest, most robust European economy is growing at %1 a quarter, how much more do you guys expect the US to grow?

In a perfect world, with the perfect republican president, how much would the economy be growing right now, given the global situation??

ernesto on May 9, 2011 at 3:53 PM

Your first point is exactly right! Obama has ruined the whole world’s chance at recovery! I’m surprised you would notice.

Obama is anti-business and the Democrats can’t begin to understand how demonizing business effects investments. They don’t get how uncertainty for months over the tax cuts dragged the markets. Democrats just can’t get it in their heads that business, capitalism is the best form of economy.

By being a friend to all those evil evil corporations you folks are always blaming for everything… the money would be in the economy working to make it work instead of hiding off shore from the taxes the Dems will pass at any moment!

Democrats are at war with capitalism, is it any wonder capitalism goes into hiding until they are gone?

When it is stated policy that Obama wants to take money away from people and give it to other people who didn’t earn it, is it hard to figure out that the US is not a safe place to do business?

Look around this is what your party’s politics bring.

Reality is that capitalism works, and big government controlling and manipulating don’t.

petunia on May 9, 2011 at 4:50 PM

House Republicans are unlikely to give Obama another ATM card this year.

With our leadership, does anyone truly believe this? I sure don’t. Our side folds than Superman on laundry day! (to borrow from Seinfeld)

search4truth on May 9, 2011 at 4:52 PM

***faster than Superman on laundry day…..sorry.

search4truth on May 9, 2011 at 4:53 PM

It was/is my understanding that no matter what the problem was/is, Barry could fix it at a snap of his fingers.That is what he said and the MSM parroted.

BruceB on May 9, 2011 at 5:08 PM

That’s because Chile has a privatized version of social security and Medicare. And so everyone dies at 66 (per the left’s attack ads) which means the country doesn’t have to spend any money taking care of its old people.

angryed on May 9, 2011 at 4:19 PM

Huh? Thought it was all that copper they’re sitting on?

Chile’s overall trade profile has traditionally been dependent upon copper exports. The state-owned firm CODELCO is the world’s largest copper-producing company, with recorded copper reserves of 200 years. Chile has made an effort to expand nontraditional exports. The most important non-mineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood, and wine.

In 2010 total exports were $69.6 billion, an important increase from 2009 ($53.7 billion) due mainly to cooper prices. Imports increased from $39.7 billion in 2009 to $54.5 billion in 2010, driven in large part by higher petroleum prices. In 2010, China was Chile’s largest export market, followed by Japan, the United States, Brazil, and the Netherlands. Chile’s most important sources of imports are the United States, China, Brazil, Argentina, and South Korea.

Actually, it has little to do with privatizing health care and retirement, in fact, their government has been investing heavily in infrastructure to such an extent that many on HA would have heart palpitations if done here:

The Chilean Government estimated that the February 27, 2010 earthquake and tsunamis destroyed 3% of Chile’s capital stock and cost around $30 billion, more than 17% of Chile’s GDP. The government spent several hundred million dollars on emergency relief measures and committed an initial $8.4 billion for reconstruction focused in four main areas: rebuilding homes, reconstructing schools, restoring public infrastructure, and providing health care in heavily affected areas. In February 2011, at the 1-year anniversary of the earthquake, Chile had made significant progress on rebuilding infrastructure (roads, bridges, potable water) and schools, but was still striving to provide permanent housing solutions and to rebuild the health care infrastructure.

http://www.traveldocs.com/cl/economy.htm

Also, if their version of Social Security (like I believe Switzerland’s) is state-mandated, then is that really free enterprise?

One of the two leading coalition parties (Unión Democrata Independiente or UDI) is described as being Conservative, anti-abortion, anti-gay marriage, contraception and divorce, but lists one of their principles as being “A New Face of Marxism” (http://independent-democrat-union.co.tv/).

So, the country seems to be run by Social Conservatives and pragmatic pro-free enterprise Liberals…who sit on hundreds of years of copper reserves. Resources like that can make any Socialist country look good…or are they really pro-free enterprise?

The government’s role in the economy is mostly limited to regulation, although the state continues to operate copper giant CODELCO and a few other enterprises, including one state-owned bank–Banco Estado.

(Traveldocs link)

Dr. ZhivBlago on May 9, 2011 at 5:15 PM

It was/is my understanding that no matter what the problem was/is, Barry could fix it at a snap of his fingers.That is what he said and the MSM parroted.

BruceB on May 9, 2011 at 5:08 PM

Absolutely, the waters will recede, global warming will end, house payments will be paid, no more worries…hope and change, yes we can…

right2bright on May 9, 2011 at 5:21 PM

but Joe Biden predicted 7% GDP growth annually for as far as the eye could see…..what gives? Didn’t the economy get the memo?

ted c on May 9, 2011 at 3:47 PM

Joe’s biggest challenge comes from believing his own press clippings. Sayin’ so don’t make it so, Joe….

rwenger43 on May 9, 2011 at 5:22 PM

FDR then got elected to third and fouth terms.

burt on May 9, 2011 at 4:23 PM

Reminds me of that saying about trading markets: “The market can stay irrational longer than you can stay solvent.” In this case, the electorate might stay irrational longer than America can stay solvent. With the levels of ignorance and media brainwashing – especially among younger people – Obama might get reelected no matter how disastrously screwed up the economy and the country are. To quote another established maxim, “you can’t fix stupid.”

Django on May 9, 2011 at 5:30 PM

Ed, That the Agenda Media didn’t write about Q1′s crappy GDP numbers isn’t particularly surprising. The good news is that I wrote extensively about it in this post. I’m sure I wasn’t alone on the blogosphere.

LFRGary on May 9, 2011 at 5:46 PM

** Of course plenty of stupid money has and always will flow to bad investments.

angryed on May 9, 2011 at 3:47 PM

Viewing the purchase of a house as an investment is the problem. Up until my generation (boomers) the purchase of a house was meant to be a buffer for when you retired. You owned the place outright so your fixed costs went down and you didn’t need as much income. Now you have an investment and enter retirement still paying on a mortgage meaning you need a bigger retirement kitty to get by on. In this case we got taken to the cleaners by the financial industry.

I am one of those who actually owns my place outright. I am not concerned about my property values. I am retired and am doing okay even in this environment. It is also this attitude that I taught my two children consequently they didn’t buy more house than they could afford. My son purchased a house than was 2X his gross salary and my daughter about 1.75X her gross salary. This has allowed them to invest the difference and begin building a better retirement fund for themselves. A little common sense about finances and what constitutes an investment goes a long ways.

chemman on May 9, 2011 at 5:47 PM

Ernie you are such a toadie

So Mickey about that nagging question

Oh and it is GOOD to know the left is all for the Bush rules when it comes to OBL

Yes you are an idiot

CWforFreedom on May 9, 2011 at 5:49 PM

You’re just not listening to the right news people or reading the correct newspapers, Ed!

Everything is going according to plan. The economy is rebounding! Green shoots everywhere! California is even taking in more tax money than forecast! Happy Days are here again! And THE ONE is shaking hands and kissing babies!

Don’t expect Obama The Magnificent, KILLER OF OBL! to let that drop any time soon. It’s all he’s got.

GarandFan on May 9, 2011 at 5:55 PM

Didn’t this news come out around the time the OBL operation had been released? Same thing for those job numbers and unemployment %. When the administration is waving one hand in front of you, watch what the other hand is doing instead.

Weebork on May 9, 2011 at 4:21 PM

Tin foil hat on:
You think maybe he dithered on his decision until that weekend to bury all that bad news.
Tin foil hat off.

chemman on May 9, 2011 at 5:56 PM

Moody’s just downgraded their rating for Foxwoods Casino in Connecticut. Just a few years ago they were awash in cash.

Del Dolemonte on May 9, 2011 at 5:57 PM

This can’t be right. CBS news sounded very upbeat.

hawkdriver on May 9, 2011 at 7:36 PM

Some stupid interview on the radio today wherein a guy says that we need to lower the price of gas at least 60 cents to get things going again… I yelled ‘shill’ and ‘shenanigans’at the radio… and then burned another gallon.
-
According to Barry’s plan… that 60 cent drop should look good by the time it happens… if it happens…
-

RalphyBoy on May 9, 2011 at 7:51 PM

how much more do you guys expect the US to grow?

ernesto on May 9, 2011 at 3:53 PM

-
Barry promised no higher than 8% unemployment… if he could spend all that money… Remember? Let’s start there and then move on to shovel-ready…
-
I’ll tell you what i see… Lots of roads dug up, but not many being put back down… I must pass through 10 construction areas going to work… most just seem to be storage areas for cones and equipment…
-
Any moron can spend money and tear things up… and that’s what Barry is… a moron… Oh, sorry… A Moron.
-
He spent us into a bottomless pit of debt and you’re still defending him? Now that’s BLIND LOVE.
-

RalphyBoy on May 9, 2011 at 8:03 PM