The BEA’s “advance estimate” release of Q1 GDP came in today at a very low 0.7%, indicating severe slowdown of growth. The growth rate was attributed to slowed consumer spending, downturn in inventory investment, and a slowdown among state and local spending.
Of course, this exposes one of the problems with GDP in the first place: it relies on government spending and consumption qua consumption. That is, it pays little attention to the health of the capital structure and artificial credit expansion. Further, it does not take into account the fact that government expenditures are not necessarily connected to true market demand. As Rothbard noted:
Spending only measures value of output in the private economy because that spending is voluntary for services rendered. In government, the situation is entirely different ... its spending has no necessary relation to the services that it might be providing to the private sector. There is no way, in fact, to gauge these services.
Thus, a high GDP number doesn’t imply a healthy of the economy in the first place. Nevertheless, the fact of the matter is that the econometric establishment claims GDP is a good reading on the progress of the economy. And therefore their own models are challenging their claim that their central planning is doing the trick! Will the Fed hike rates into the lowest GDP reading in 3 years?
Finally, this low number points to the superior accuracy of the Atlanta Fed’s GDPNow forecasting model (final estimate was 0.2%) than the New York Fed’s Nowcast model (2.7%).
Atlanta Fed:
New York Fed:
