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The Economy is Still Booming

The economy roared to a 4.8% growth rate in the first quarter of 2006:

April 28, 2006 -- The Commerce Department's Bureau of Economic Analysis says that the U.S. economy saw a big bump in activity during the first three months of the year -- the biggest in more than two years.


The report out this morning shows that the U.S. gross domestic product grew at an annual pace of 4.8 percent between January and March. That's the best performance since the middle of 2003 and is well above the disappointing performance seen in the fourth fiscal quarter of 2005 -- just 1.7 percent growth. Economists had been expecting growth around 5 percent...

...Today's release has some interesting numbers showing that consumer spending (+5.5 percent), business investment (+16.4 percent) and government spending (+10.8 percent) helped goose growth upward between January and March. Increases in U.S. exports (+12.1 percent) also helped move things along.

The high GDP number seems to indicate that businesses are finally beginning to spend their record profits. Since the 2001 recession, business has been hesitant to invest. Today's report shows that businesses are beginning to pick up some of the slack as consumers slow their spending growth.

This is very big news that got lost amid the talk about immigration and oil and gas prices. Even with all the "pain at the pump" that the media and the Dems have been enthusiastically discussing, the American consumer is still spending money and must feel comfortable with their financial situations.

And take a look at the 16.4% increase in business investment. That's impressive. American businesses must be very confident that this growth will continue.


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Comments (20)

shhh, don't tell the Democr... (Below threshold)
Wanderlust:

shhh, don't tell the Democrats that this growth and investment is netting real jobs (not just McDonald's frycook jobs) and that the investments are real, not based on a fake economy like the so-called "internet boom" in the mid-1990's, under Clinton.

Now if only there were a younger Zell Miller type running for President in 2008...sigh.

c'mon, mak44, tell me I'm being a warmongering psychopath for wanting a Democrat like Zell...dare ya :)

American business... (Below threshold)
American businesses must be very confident that this growth will continue.
Or it demonstrates that you can't put some capital investments off indefinitely. It's long overdue—business investment has been in the doldrums since, well, the last century.

Regardless, it's good news.

Kim,These statisti... (Below threshold)
Rob Filomena:

Kim,

These statistics, while superficially encouraging, don;t begin to tell the whole picture. They don't reflect the consistent wage stagnation over the last 5 years, the increase in the poverty rate and the decline in household savings. And to Wanderlust and his references to the "fake economy", The real gains in the in GDP, up to 90% of gains on the past 5 years, have been due to real estate speculation, construction and consumer spending, much of which is financed by the newly earned home equity. This is just a horse of a different color from the Internet boom of the 90's.

Things are by no means terrible for the average American, but quick statistics and soundbytes gloss over the true situation in this country which is the ever-growing gap between the rich and poor, and the astonishing debt and weakening of the dollar that have resulted from this administration's policies of cutting taxes, borrowing, spending and leaving our children and grandchildren with a potential fiscal dark age to sort out for themselves

Rob Filomena:We ev... (Below threshold)

Rob Filomena:

We ever pay the national debt run up in the 1930s?

World War II?

The Cold War?

You can pretend Bush ran up a $9 trillion debt all you want, but the fact is tax cuts kept the economy going through what should have been the 9/11 Depression.

Our chuildren and grandchildren will do what we did: Roll the debt over. Catch on: The National Debt is never paid off

Don Surber,Catch o... (Below threshold)
Rob Filomena:

Don Surber,

Catch on:

The strength of the dollar in the world economy and the US clout on the world stage is what allowed us to run up huge defecits and borrow freely in the past with little worry of how we might pay it back. If the dollar continues to decline it could in the forseeable future lose its status as the world reserve currency, replaced perhaps by the Euro or the RMB, and then the governments financing our debt might be inclined to cash in their chips. Without question, this would destabilize our economy and significantly affect the overall quality of life in this country.

Hi Rob,I would agr... (Below threshold)
snowballs:

Hi Rob,

I would agree with the statement:

They don't reflect the consistent wage stagnation over the last 5 years, but then I would also add that this does not represent any notable trend for the last 5 years simply as a Q1 measurement. I mean, why would it?

What it happens to be, as Kim as correctly pointed out, is a way to measure consumer confidence. What is also measures, as Kim has compared this with "pain at the pump" headlines, it's just not where it should be. Also, it's a good example, and measurement if you like, of why people visit blogs for an alternative viewpoint - maybe - hell, who knows? It applies to me, I guess.

When you talk about the "ever-growing gap between the rich and poor", it's easy to subscribe to the idea that this is a vacant area within our economy - but it is not. Everywhere in the world exists a growing gap between rich and poor, but usually it is indeed a figurative gap for lack of a middle class. Not here.

Also, the weakening of the dollar has not come from tax cuts. Besides when our dollar is weak, it's easier to sell goods elsewhere, right? Less outsourcing, right? Hopefully, address the trade deficit problem too (*hopefully). There's a correct balance in there somewhere. I mean, there's pros and cons for each, but as Kim states, this is encouraging news for Q1.

I blame Bush.... (Below threshold)
Jo:

I blame Bush.

Monetary policy is controll... (Below threshold)

Monetary policy is controlled by the Federal Reserve system, so if anyone wants to point blame for the strength of the dollar, aim for the right entity. In any case, the conbination of fiat money and a central banking system is potentially disasterous, no matter who is POTUS.

Tax cuts don't create more money, but they do put more of the money supply into the hands of the private sector.

GDP is not the perfect measure of economic wellness, but it does say a lot about the level of economic activity going on, so a good rate is obviously more desirable than a bad one.

Kim Priestap's and Dave Schuler's views toward business investment is the correct one. Business' have long been stifled from reinvesting in R&D since the graduated income tax removed the excess capital they earned.

I dissent with everyone in this thread that claims speculation, whether in tech stocks or realestate,
has no real value. Any growth in new fields requires faith expressed in capital. Otherwise, new growth would be impossible. If a large portion of those industries fail, it only follows that the market is rejecting products that consumers find inferior to others. When consumers have choice, there will be winners and losers.

so if anyone wants to po... (Below threshold)
snowballs:

so if anyone wants to point blame for the strength of the dollar, aim for the right entity

Typewriter King, there are a lot of factors, even outside of our Fed that contribute to the price of a U.S. dollar.

I don't think that you are trying to imply that the US Reserve solely controls it, but indeed there is no magic dial, or set of levers that controls our dollar's price*. There are a lot of foreign factors that contribute to it on various levels.

*a good percentage of it is however.

All I can say is my one sma... (Below threshold)
Faith+1:

All I can say is my one small example. I work for a professional software company dealing in security software. We've just added 2 additional positions this past week to be filled---not with frycook level employees but degreed employees with salaries in the mid to high 5 digits.

In the last 6 years our office has grown from 30 employees to nearly 200. The overall company grew from 1500 employees to 15,000 (granted there was a merger which accounted for ~6000. The rest was growth due to the increase in business investments and opportunities.

I'm not an economist. I do... (Below threshold)
docjim505:

I'm not an economist. I don't understand much about monetary policy, debt ratios, real wages, etc.

All I know is that I lost my job back in '02, the result of a long slump in my company's sales performance which in turn was the result of a very soft market and foreign competition (oh, and shooting off my mouth in staff meetings one time too many).

In my current job, I'm paid better than I've ever been paid before (got a $4k bonus at Christmas on top of a $4k raise), we're steadily expanding our sales, tech, and production staff, we just bought another business to bring their products and customers under our umbrella, and we almost hit $1 million in sales this month. A couple of years ago, we barely did $2 million in A YEAR.

So, I'm pretty happy with the economy right now, and I hope it continues in the direction it's going. If somebody else gets a lot richer than I do while all this is happening, I think I can live with it.

Regarding the gap between r... (Below threshold)

Regarding the gap between rich and poor:

It is irrelevant in a free-market society.

The rich, through stupidity, can become poor very quickly.

The poor, all the time, rise to the middle class, or even become rich themselves.

How? By combining the efforts of hard work, innovative thinking, and good interpersonal relations to make a new future for themselves.

It is they ... not the government ... that make things better.

OTOH, the entitlement culture (and the taxation that funds it) promoted by those who are wont to criticize today's economics actually discourages the most-reliable path to riches for the poor that exists.

Government is structually incapable of active intervention that would do little more than give the poor a step up ... and it often covers that step with banana peels.

Yet we have people who still believe that it must intervene in the name of "fairness" ... the fairness that compels us by the force of law to wait for the slowest before allowing the rest of us to proceed ...

... even though it extends the time for ALL ... even the slowest ... to progress.

We don't need that kind of "fairness" -- for it is unfair to ALL.

Notice how the 'paper of re... (Below threshold)
wave_man:

Notice how the 'paper of record', the New York Times, chose to start their story U.S. Economy Still Expanding at Rapid Pace 04.28.06, in the first paragraph:

Gas prices are rising, as are mortgage rates. House prices in many once-hot markets have started slipping. The American automobile industry shows no sign of recovery. And the paychecks of most workers have not even kept up with inflation over the last four years.

Yet the national economy continues to speed ahead, with families and businesses spending money at an impressive pace. Forecasters expect the Commerce Department to report this morning that the economy grew at a rate of around 5 percent in the first quarter, the biggest increase since 2003.

Can't even present good news without starting with bad news. And they wonder why their profits are in the dumper.

Gas prices are rising because of demand and poor political policies.

Mortgage rates are rising because the Fed has raised interest rates to cool inflation fears.

The American automobile industry is in the toilet because of unions and the fact that overseas manufacturers are making what the majority want. And most are building them in the U.S. [Toyota, Nissan, BMW, etc.]

Paychecks keeping up with inflation? When inflation has been the lowest that it's been in 30 years? Geez, I broke in to the job market during the 'stagflation' of the 70s, when inflation was 13%+ annually.

Yet in spite of this, the greatest economy in the world grew at a rate higher than during the artificially inflated growth during the dotcom boom.

Oh, and Rich, great post.

Rich;That was a grea... (Below threshold)
Wovoka:

Rich;
That was a great comment however, I cannot agree that "the poor, all the time, rise to the middle class or become rich themselves".I think New Orleans would have voided that myth.

Hmmm.I bl... (Below threshold)
ed:

Hmmm.

I blame Bush.

I blame the creepy Burger King mascot.

Really now. Who wouldn't immediately enter into a flight-or-fight reaction upon encountering such a mad beast?

"Geez, I broke in to the jo... (Below threshold)
John S:

"Geez, I broke in to the job market during the 'stagflation' of the 70s, when inflation was 13%+ annually" Geez, me too. And the company I worked for then gave us a 10% "cost of living" raise every 6 months to keep up. Somehow I don't see that happening in today's "global economy." BTW, that company, an automotive supplier, no longer exists. In its last incarnation it was bought by a French company, which immediately cut salaries 40% across the board.

And today most of those people (at least the lucky ones) have taken another 50% pay cut to work at Walmart.

Wovoka ... I did not mean t... (Below threshold)

Wovoka ... I did not mean that EVERY poor person rises above their poverty ... what I meant is that such advancement is commonplace, contrary to the opposition's view that they will always be stuck in poverty -- unless the "enlightened" intervene, which too often winds up starving (if not killing) the geese that lay the golden eggs of prosperity and opportunity.

As for N'awlins ... their political leaders may have been the biggest impediment to advancement for the poor, as they joined in the biggest lies ever told (at least by implication) by our politicians ...

... "all you have to do is show up for work, and we'll make sure your company assures your future"...

... followed closely by, "if you can't get a job, no problem ... just trust us to help you".

I paid $3.14 a gallon for r... (Below threshold)
Lee:

I paid $3.14 a gallon for regular gas today. By the end of the year, if gasoline prices don't fall back 10-15%, the economy will definitely be feeling the effects of high gasoline prices.

Faith+1 and docjim505, the ... (Below threshold)
snowballs:

Faith+1 and docjim505, the company that I work for is in the same situation. Growth, growth and more growth. It happens to be a large multination with the largest market being the US. In '02, the company was still "cutting the fat", but now that fat is highly sought after. Gross, really.

Also, Amen Rich. That's pure poetry.

Lee, I'm not sure what your comment means. Obviously, fuel for our automobiles (and Airlines, and Transport) is more expensive but the rest is speculation. I would say that our economy is much more resilient than a +-15% difference in cost for fuel alone however.

It sounds like the leadersh... (Below threshold)
virgo:

It sounds like the leadership in New Orleans and France have a lot in common.




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