The Bureau of Economic Analysis released the advance first quarter Gross Domestic Product (GDP) report this morning, which showed a contraction in GDP of 6.1%. That is considerably worse than the expected decline of somewhere between 4.7% and 5.1%.
This was the worst performance by the economy in consecutive quarters in more than 50 years. Despite this the market rallied as numerous economists saw positive signs in the news. They referred to declining inventories and an increase in personal consumption expenditures of 2.2% in the first quarter as signs of hope. How that latter figure coincides with the 7.8% drop in purchases by U.S. residents of goods and services for the same period is unclear but suffice it to say, this was a bad number. See for yourself.
We have noted here that it was a positive sign when we as a nation began to drop the false pretenses of looking for the optimistic viewpoint on the economy. We saw it as a good thing when the new administration talked straight to us. Of course, this was easy for them as it was difficult —even for the most ardent partisan — to try and pin this economic crisis on the new administration. Yet critics tried pointing out how the markets dropped whenever an administration official made public comments. In the face of criticism the new President seemed pressured to put a positive spin on things. We may be a minority here but we prefer the truth.
As one commenter noted in response to an overly positive wire story on the GDP results, “The ‘Truth’ is a lagging indicator!!!”
The idea that the economy was being made worse by overly pessimistic stories in the media ignores the realities of what has occurred and what is occurring throughout the economy.
And at the risk of repeating ourselves, we must note that as signs of the crisis grew we were being spoon fed an overly optimistic analysis on the economy from the Bush White House, The Federal Reserve and the Treasury along with a vast majority of so called experts yet none of that was able to prevent the economy from this tailspin.
The economic crisis we are in is the result of poor decisions made by government, business and individuals, not a ‘so called’ crisis of confidence. That followed after we saw the results of bad policy. It will change when bad policy is replaced with good policy, not by a general sense of optimism where we look at the bright side of a worst in 50-year GDP report.
Whether we are on the right path towards good policy is debatable. We will soon find out what the Fed has to say following its FOMC meeting.
Tags: Add new tag, economic crisis, GDP
[...] noted here yesterday how we were a little confused with the positive response to the poor Gross Domestic Product report [...]