FW: [baker-data-commentary] GDP BYTE, 04/27/2000

[Richardson_D <Richardson_D@xxxxxxx>]

> ----------
> From: 	Joyce Kim[SMTP:kimj@xxxxxxxx]
> Sent: 	Thursday, April 27, 2000 10:51 AM
> To: 	baker-data-commentary@xxxxxxxxxxx
> Subject: 	[baker-data-commentary] GDP BYTE, 04/27/2000
>
> GDP BYTE, April 27, 2000
> by Dean Baker
>
> SURGING CONSUMPTION AGAIN DRIVES GROWTH
>
> Another huge burst of consumption spending
> propelled growth in the first quarter. Real consumption
> spending grew at an 8.3 percent annual rate providing the
> basis for a 5.4 percent rate of GDP growth in the quarter.
> While this growth rate is down somewhat from the 7.3
> percent growth rate of the fourth quarter, the slowdown is
> entirely attributable to inventory fluctuations. The growth of
> final demand actually accelerated from 6.0 percent in the 4th
> quarter to 6.9 percent in the first quarter.
>
> There is some evidence that this more rapid growth is
> being accompanied by higher inflation. Higher oil costs
> caused the implicit price deflator for gross domestic
> purchases and personal consumption expenditures to rise at a
> 3.2 percent annual rate. This is the highest rate of inflation
> for consumption expenditures in the GDP data since the third
> quarter of 1994. While higher oil prices have been the largest
> factor in this acceleration, there is evidence of more rapidly
> rising prices elsewhere. The price of consumer services rose
> at a 3.3 percent rate in the quarter, compared to a 2.1 percent
> rate in the previous two years. More rapidly rising housing
> and medical care costs are the biggest factors in this
> acceleration.
>
> The growth in consumption purchases was driven by
> a 26.6 percent jump in durable goods purchases, as
> automobile and home computer purchases soared in the
> quarter. Purchases of non-durable goods and services rose at
> a 6.9 and 5.4 percent annual rate, respectively. This surge in
> consumption pushed the personal savings rate to yet another
> record low of 0.7 percent.
>
> Investment also grew rapidly in the first quarter,
> rising at a 21.2 percent annual rate. This was largely a
> bounceback from weak growth of just 2.9 percent in the
> fourth quarter. The underlying rate of growth of investment
> is probably about 10 percent, approximately the same rate as
> the last three years.
>
> Perhaps the most striking item in this report is the
> 23.7 percent growth rate in residential housing. This number
> is consistent with recent reports on housing starts and
> construction spending, but it demonstrates that the Federal
> Reserve Board's rate hikes have had very limited impact on
> the economy to date.
>
> The strong growth in the quarter led to another huge
> leap in the trade deficit, which hit 3.5 percent of GDP, a new
> record. Half of this story is explained by a 9.5 percent real
> increase in imports accompanied by a large rise in oil prices.
> But the more surprising part of the story is the stagnation of
> real exports, which declined by 0.2 percent in the quarter.
> This decline, occurring at time when most of the rest of the
> world is experiencing healthy growth, suggests that the dollar
> is seriously over-valued. The rise in the trade deficit lowered
> the growth rate for the quarter by 1.3 percentage points.
>
> The other big drag on growth in the quarter was the
> slower pace of inventory accumulations. Non-farm
> inventories had increased at a $72.3 billion annual rate in the
> fourth quarter as firms built up stockpiles as a precaution
> against Y2K problems. The rate of inventory growth fell to a
> more normal $31.1 billion in this quarter. This slower rate of
> inventory accumulation brought down the pace of GDP
> growth by 1.4 percentage points.
>
> This report shows that the economy continues to
> grow at incredibly rapid pace, but it is being driven by two
> unsustainable trends: a plunging savings rate and
> corresponding build-up of personal debt, and a surging trade
> deficit. To date, the Federal Reserve Board's efforts to slow
> the economy have had little effect. Yet, inflation remains
> mild, except for the surge in oil prices, the continuing
> problems in the health care system driving up medical costs,
> and the demand driven rise in housing prices.
>
>
>
> Dean Baker is Co-Director of the Center for Economic and Policy
> Research.
>
> ******
>
> The Center for Economic and Policy Research's GDP Byte
> is published quarterly upon release of the Bureau of
> Economic Analysis' report on the Gross Domestic Product.
> For more information or to subscribe by fax or email
> contact CEPR at 202 293-5380 ext. 206 or kimj@xxxxxxxxx
>
>
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