CounterPunch Exclusives

CounterPunch Exclusives

Five Takeaways from the First Quarter GDP Report

Chart Source: U.S. Bureau of Economic Analysis

GDP Growth Was Driven by a Jump in Federal Government Spending

Spending by the federal government fell at a 16.6% annual rate in the 4th quarter. This was partly driven by the DOGE layoffs, most of which first took effect in the 4thquarter. However, it was also partly driven by the government shutdown at the start of the quarter, which continued until the middle of November. The contraction from the DOGE cuts is not being reversed, but the contraction from the shutdown was reversed. This explains the 9.3% growth in federal spending, which added 0.56 percentage points (PP) to growth for the quarter.

Pulling out federal spending, GDP growth was around 1.5%. That’s not disastrous, but not something to write home about.

It is common for economists to look at the growth in final sales to domestic producers as a sort of “core” GDP. This strips out the growth (or shrinkage) from inventories and net exports.

This is an especially bad approach to the first quarter data. The big jump in federal spending gets counted in the core even though absolutely no one expects it to continue. (Actually, the Iran War may sustain growth in spending, but that is a bit out of the ordinary.) In the fourth quarter, the reduction in federal government spending reduced the growth rate by 1.16 PP, which was the main reason for the weak 0.5% growth rate reported for the quarter. The move to a core measure would not have changed that picture.

The other problem with the core measure is that the imports it strips out directly contribute to the investment growth it counts. Computer investment rose at a 64.7% annual rate,........

© CounterPunch