NYT's Irwin: Don't Be Fooled by GDP Data, These 5 Sectors Are Weak

Wednesday, 06 Aug 2014 12:37 PM

By Dan Weil

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GDP grew 4 percent in the second quarter, but that's no reason to jump up and down, says New York Times columnist Neil Irwin.

Economic output is still $800 billion a year lower than it would be if the economy were cranking on all cylinders, he writes. Irwin cites five sectors that are limiting the expansion.

Housing is the biggest detractor, accounting for $239 billion of the GDP gap. "Even years after the housing bust, the United States is building far fewer houses than would be expected given demographic trends," he writes.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000


Decreased spending by state and local governments, which cut employees and costs after the financial crisis, accounts for $189 billion of the GDP shortfall.

Durable goods consumption accounts for $178 billion. "This is most likely related to the same factors holding back housing," Irwin suggests. Consumers aren't purchasing cars, furniture, etc.

Weak business equipment investment accounts for $120 billion of the output gap. "It suggests a continued lack of faith among executives about future demand," he notes.

Reduced federal government spending accounts for $118 billion of the shortfall. "The spending cuts that were part of deals to trim expenditures emanating from the 2011 debt ceiling deal, combined with the winding down of the wars in Iraq and Afghanistan, mean that federal spending was 6.8 percent of potential GDP, down from 7.4 percent of actual GDP from 1993 to 2013," Irwin explains.

"What you want to see is that even if one segment, say housing, shrinks in importance, something else rises to take its place," he adds. "And what has happened in the last few years is that each of these major segments has shrunk relative to its usual role in the economy, and nothing else has increased enough to pick up the slack."

Another expert who was less than excited by second-quarter GDP is Mark Bertolini, CEO of Aetna, the country's third-largest health insurer.

"We saw weather impact on healthcare utilization in the first quarter, . . . because people could not get to the doctor," he tells CNBC. "We have seen some increase in utilization [since then,] . . . and that would fit with an improving economy."

But asked whether it feels like a 4 percent world, Bertolini quickly says, "no."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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