NIPA review

There were some huzzahs over the first quarter GDP number. The 3.2% quarterly rate, while still below two of 2018’s quarters, was at the upper end of its recent range. And the yearly rate, also 3.2%, was the best in almost five years. But the quarter’s numbers do nothing to close the gap with the long-term trend, and the composition of growth was unimpressive.

As the graph below shows, actual GDP remains well below its 1970–2007 trendline, which is based on an average of 3.2% growth. Since 2019Q1 just matched that average, the trendline remained just as distant. GDP is now almost 17% lower than it would be had the 3.2% average prevailed after the Great Recession. That gap works out to a deficiency of almost $5,000 in per capita terms, which, given long-term relationships, works out to about $3,800 in after-tax personal income. Consumption is 16% below trend; nonresidential fixed investment, 15% below; residential investment, 40% below; and government, 20% below.

And important components of GDP sagged badly in the quarter.

Consumption contributed just 0.8 point to real GDP, less than half what it did the previous quarter, and well below the average for both this expansion and the average of all expansions between 1949 and 2007. The contribution of goods consumption was negative. Nonresidential investment was weak, with both equipment and structures contributing nothing, and only intellectual property making any contribution. Residential investment was a drag on growth. Imports were weak, which is actually a positive contribution to growth, since they’re counted as a subtraction from GDP, but it’s not a sign of strong domestic demand. Inventory investment—which was 0.6% of GDP in nominal terms, twice the average since 1980—contributed a hefty 0.7 point to the headline growth number.

But the headline number did look pretty decent.