Decomposing The GDP Numbers

Some useful insights from Karl Smith who says the Q1 internals “don’t look as bad” as the headline figure would indicate:

Government knocked over 1 point off GDP. About .69 of that was defense spending. State and local continued to drag at .41 percent. This represents important drag but when thinking about the conditions facing private business, GDP looks better.

— Equipment and software continues to be strong, adding .8 points to GDP. We have experienced a strong rebound in equipment and software, that would be indicative of a mini-boom if there wasn’t the drag from construction.

Residential and non-residential structures continued their drag on GDP, knock .7 or so off of growth.

— The fundamentals still seem like they are shifting towards stronger growth. We are not seeing depressed personal consumption expenditures. We are not seeing industrial production stall out. We are not seeing no new investment in equipment and software.

Which is to say that if we managed to avoid austerity budgeting in the public sector, we’d be doing okay, and if we managed to do that and repair housing finance we’d be having a real recovery. Of course an unemployed family can’t feed itself with hypotheticals but this serves to remind us that it’s not like there’s something mysterious and broken in the economy. With appropriate public policy we’d be in much better shape.