Friday, July 28, 2006
Annualized U.S. gross domestic product growth in the second quarter of 2006 came in at 2.5 percent, according to a July 28 Commerce Department report. Market commentators, disappointed with the figure, immediately warned that U.S. growth was tanking and the Federal Reserve was clearly finished with the growth-cooling tactic of raising interest rates.
Anytime a highly developed economy such as that of the United States exceeds a 2 percent growth rate, it should be cause for celebration. Unlike developing economies, which experience massive growth shifts in line with whatever commodity prices are doing, the U.S. economy is huge, diverse and relatively even-keeled. Assuming the Commerce Department's figures are correct, the 2.5 percent growth in the second quarter added about $80 billion -- roughly the amount of the entire Algerian economy -- to the U.S. economy. Not bad for three months' work. Claiming the growth is not good enough is like a child crying that he did not want that Nintendo for his birthday.
The eurozone has only achieved 2.5 percent growth in three of the past 15 years. The United States, in comparison, has only failed to hit the 2.5 percent mark in two of the past 15 years.
Besides, the number is almost certainly an understatement of actual U.S. growth, and the Commerce Department itself notes that this is only a preliminary estimate. Compare that to a "real" number: collected federal tax receipts. Those receipts are up 13 percent for the first nine months of the current fiscal year. The idea that receipts are up so much but growth is only up by 2.5 percent is a bit disingenuous. Commerce will issue its first revision at the end of August.
Here's a longer term look at the almost unbelievable strength of the American economy:
The American economy is strong not because America has great natural resources or even because our people are particularly skilled -- Russia and Africa have more of the former and Europe and Japan more of the latter. Our economy is strong because we relish change and remain flexible. If we lose that, we will lose all.
The 2.5% also comes after a quarter where growth was 4.5+ % which followed the Katrina/refinery shortage/winter quarter where growth was 2.5%. The effect of rising interest rates is starting to be felt in Housing as new home inventories rise. but, as you point out, we are able to deal with these problems and get back on track.