First-Quarter GDP, Part 1 of 3: AP Argues With Others

On Friday, the government reported that the economy grew by an annualized 2.5 percent during the first quarter. The awful 0.4 percent result seen in the fourth quarter was largely sloughed off as caused by a number of one-time factors. Analysts convinced themselves that reported first-quarter growth would come in at 3.0 percent or slightly higher in Friday's release. Instead, we saw what Zero Hedge noted was the biggest such expectations miss since September 2011.

As a result, at least three establishment press organizations pronounced the result disappointing -- except for two business reporters at the Associated Press whose names are virtual fixtures here.'s email alert after the stock market opened expressed disappointment:


So did Matthew C. Klein at Bloomberg (bolds are mine throughout the rest of this post):

Latest GDP Report Shows U.S. Economy Still Waiting for Liftoff

Forecasters had been expecting the U.S. economy to grow at an annualized rate of 3 percent in the first three months of 2013. The advance estimate released this morning by the Bureau of Economic Analysis was therefore disappointing -- output only increased at an annualized rate of 2.5 percent. It's easy to overstate short-term changes in the data, as well as the importance of surprises. The broader takeaway, however, is clear: Growth continues to be sluggish.

So did Leah Schnurr at Reuters:

Dollar falls against the yen; bond yields decline

The U.S. dollar tumbled against the yen on Friday after the Bank of Japan left its monetary policy unchanged, while benchmark U.S. bond yields fell to near 4-1/2-month lows after the U.S. economy grew less than expected in the first quarter.

The disappointing growth rate spurred concerns about a tepid outlook for the United States which, along with recent concerns that China's growth is slowing, also hit the price of oil.

Apparently there was a doubled concentration in the daily koolaid delivery at the offices of the Associated Press Friday morning from which the wire service's Martin Crutsinger and Christopher Rugaber drank heartily all day long. I don't know how else to explain the pair's late Friday afternoon narrative (numbered tags are mine):


After nearly stalling in late 2012, the American economy quickened its pace early this year despite deep government cutbacks. [2] The strongest consumer spending in two years fueled a 2.5 percent annual growth rate in the January-March quarter.

The question is: Can it last?

Federal spending cuts, higher Social Security taxes and cautious businesses are likely to weigh on the economy in coming months. [3]

... Friday's Commerce Department report on GDP showed that consumers stepped up spending at an annual rate of 3.2 percent in the January-March quarter - the biggest such jump since the end of 2010. Growth was also helped by businesses, which responded to the greater demand by rebuilding their stockpiles.[4] And home construction rose further.

Government spending sank at a 4.1 percent annual rate, led by another deep cut in defense.

Sal Guatieri, senior economist at BMO Capital Markets, foresees more improvement in the second half of the year.

"The second-half acceleration will be supported by improved household finances, pent-up demand for autos and the ongoing recovery in housing," [5] Guatieri says. "We are seeing significant housing-related consumer purchases in such areas as furniture."

... In a healthy economy, with an unemployment rate between 5 percent and 6 percent, GDP growth of 2.5 percent or 3 percent would be considered solid. [6] But in today's still-struggling recovery, with unemployment at 7.6 percent, the economy needs faster growth to generate enough jobs to quickly shrink unemployment.

Since the Great Recession officially ended in June 2009, growth has remained weaker than usual after a severe downturn. In part, that's because the recession followed the worst financial crisis since Great Depression. [7] The economy expanded just 2.4 percent in 2010, 1.8 percent in 2011 and 2.2 percent in 2012.


[1] -- This is the headline at the AP's national site. At the Washington Post, headline writers went with "US economy accelerates at 2.5 percent rate in first quarter, propelled by consumer spending."

[2] -- The "cutbacks" were so "deep" in the first quarter that government "outlays" of $888.25 billion during those three months was 2.3% lower than the $908.85 billion seen during the final quarter of 2012. But that reduction doesn't translate to truly reduced spending. The Congressional Budget Office's Monthly Budget Review for March tells us that "revisions to estimates of the cost of several federal credit programs—notably, the Troubled Asset Relief Program (TARP)—shrank net outlays by $29 billion this March compared with last March." TARP revisions are noncash accounting entries. I found no evidence of TARP-related entries during the fourth calendar quarter of 2012. Adding back the TARP revisions, spending during the most recent quarter was up by 0.9% over the fourth quarter of 2012. Of course, the "spending" which is a part of GDP, representing government purchases of goods and services, did decline, and is explained later. But that's not what they wrote.

[3] -- The impact of the Social Security tax increases should already have been held back consumer spending by now, and they haven't, just as they really didn't juice consumer spending during the two years that payroll-tax reductions were in effect. Businesses are "cautious" because of uncertainty caused by regulatory over-reach in general and ObamaCare in particular.

[4] -- Crutsinger and Rugaber are trying to have it both ways. Reductions in "stockpiles" was one of the pet excuses for why the fourth quarter was so weak. Now they're the big driver of growth. As I noted on Friday, growth after flushing out inventory changes was an annualized 1.92% in the fourth quarter and 1.47% in the most recent quarter. This is not progress. Excluding inventory changes, business investment contributed an unacceptable 0.53 points to first-quarter GDP growth.

[5] -- The AP pair apparently saw no need to find someone among what I believe is a clear majority who is not so impressed with future prospects.

[6] -- The setting for this "healthy economy" measurement changes depending on which party is in the White House, as will be seen in Part 3.

[7] -- This is a complete cop-out. Growth is weak because Keynesian economics has spectacularly failed, and the Obama administration, Democrats in Washington, and Ben the Betrayer Bernanke won't move away from it.

So everybody except Crutsinger and Rugaber was disappointed in Monday's GDP result. "Everybody" included another writer at the AP, which will be seen in Part 2.

Cross-posted at

Economy Business Coverage Recession Stimulus Media Bias Debate Double Standards Wire Services/Media Companies Associated Press Bloomberg Reuters Christopher Rugaber Martin Crutsinger