Not exactly breaking news, but the Bureau of Economic Analysis (BEA)’s 2nd estimate for 1st quarter 2014 real GDP growth was downgraded to an annualized rate of -1%, from its initial estimate of 0.1% growth. GDP grew at an ok 2.6% in the 4th quarter of 2013. This is the first negative quarterly growth figure since the 1st quarter of 2011.
Even though U.S. GDP is higher today than before the Great Recession, growth does not entail staying in the same place. Typically after a recession the economy generally recovers back to its trend growth, or to where it would have been if you project GDP growth forward from before a recession, as if there was none. As shown in the graph below, U.S. GDP growth has been trending positive at about the same rate as before the recession; but none of the gap has been closed between where we are and where we would have been if pre-recession trends continued. Negative 1st quarter growth takes us even further from that.
Good thing the Fed has been regularly tapering its stimulus to keep the economy from over-heating, we almost had positive growth in the 1st quarter. Now it’s likely to just be a blip, with positive 2nd quarter growth. But still, the Fed seems to think that no progress in closing the gap between where we are and might have been is grounds to withdraw its monetary stimulus. Why? There’s obviously no sign of overheating, inflation is lower now than before the recession, and unemployment is still elevated. It’s like hitting your breaks now because a deer might jump out in front of you at some point in the future. And it screws over the unemployed.
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