Yet Another Bitter GDP Disappointment

After a nightmarish fourth quarter of 2012, during which the economy was at first thought to have contracted to a tiny extent but finally eked out dismal annualized growth of 0.4 percent after revisions, President Barack Obama and his administration appeared to believe that they would have something to crow about when Friday's report on first-quarter growth went public.

Too bad, so sad, guys.

Early that morning over at the Associated Press, aka the Administration's Press, lead apparatchik Martin Crutsinger, informally nominated as the nation's "Worst Economics Writer" by National Review's Kevin Williamson (he could have added "by miles"), could hardly wait for 8:30 to arrive:

U.S. economic growth likely accelerated from January through March from a near-stall at the end of 2012, propelled by a revival in housing, steady consumer spending and increased stockpiling by businesses.

... Economists predict that the overall economy grew at an annual rate of 3.1 percent in the January-March quarter...

... A 3.1 percent growth rate would match the robust pace of the July-September quarter last year.

Really, this is the same guy who in 1987 characterized current and projected economic growth of between 2 percent and 3 percent as "weak." In Marty's 2013 world, anticipated growth only one-tenth of a point higher is now "robust." It's more than a little obvious that Crutsinger's characterizations heavily depend on which party occupies the White House.

It must have been painful once Crutsinger or one of his AP coworkers disappeared into a government-administered lock-up room where a few privileged media organizations get 30-60 minutes of advance access I believe they shouldn't have to information otherwise embargoed from release. It turns out that the first estimate of first-quarter growth in gross domestic product (GDP) from Uncle Sam's Bureau of Economic Analysis was only an annualized 2.5 percent. Contrarian blog Zero Hedge noted that this was the biggest miss against analysts' expectations since September 2011.

Well, 2.5 percent is a lot better than 0.4, right? Not really in this instance. The administration and its press acolytes tried to wave off the horrid fourth quarter as being caused by one-time items such as a sharp reduction in business inventories, and promised that things would even out with a big turnaround in early 2013. The average of the past two quarters is a paltry 1.45 percent. Big whoop.

The first-quarter expansion which did occur was driven primarily by a higher-than-expected 3.2 percent increase in personal consumption expenditures, which made up 2.24 points, or almost 90 percent, of reported growth. Given the drop in March retail sales and flagging consumer confidence, this GDP element seems overstated and likely to be revised down in May and June. Business investment beyond the inventory build-up only added .23 points to GDP growth.

It is true that about 40 percent, or 1.03 points, of the first-quarter gain was indeed due to inventory building. But the closer you look, the more troubling it gets. An astonishing and hugely disproportionate three-quarters of that inventory change -- 0.78 points -- occurred in farm inventories, a sector that is less than one percent of the entire economy. That's by far this item's largest contribution to GDP going back to at least 2004, and is enough to make one wonder how much crop value is rotting in the nation's fields and warehouses. Imports also grew by much more than exports, subtracting a half-point from GDP.