If economic recovery is the goal, folks are sure getting awfully picky about the form growth takes.
Earlier this week, Germany reported that its economy expanded 0.2 percent in the first quarter following two quarters in which output contracted. The nature of its growth was considered sub-optimal. Last Wednesday's Wall Street Journal reported that Germany's "reliance on exports and the reluctance of consumers to spend at home underscore the fragility of Europe's largest economy." Here in the US, exports aren't contributing to growth one whit. In fact, net exports, or the difference between what we buy from and sell to foreign countries, subtracted 1 percentage point in the first quarter and have added to GDP only twice in the last 21 quarters.
Presumably Germany's export-driven growth would be good for the US while our domestic-demand-driven growth would be preferable in Germany.
The US Commerce Department has revised its earlier estimate of real first-quarter GDP growth to 5.6 percent from 5.8 percent. The major contributors to growth last quarter were inventories, which added 3.5 percentage points; consumer spending, which added 2.4 percentage points; and government spending, which added 1.2 percentage points.
These categories are considered "bad" -- for us, not for Germany. The inventory contribution reflects a swing from a record pace of de-stocking in the fourth quarter to a slower pace in the first. That doesn't count, for some reason, even though inventories are always a big "swing" factor in a recovery, adding 1.5 percentage points, on average, during the first year, according to Barclays Capital Group's senior US economist, Henry Willmore.
Government spending doesn't count either. While no one is suggesting that the shift of resources from the private to the public sector is a positive trend for our standard of living, the goal of the "war on terrorism" is to ensure we keep living. The effort takes men and materiel, which takes money.
The administration and Congress haven't been shy about padding spending bills with money for all sorts of pork-barrel projects. The bottom line is, government is a growth industry and it's not about to reverse anytime soon.
The third source of growth, consumer spending, isn't considered good, or sustainable, either. Why? The consumer never took a break during the recession so he's living on borrowed time.
Japan is expected to report its economy grew in the first quarter, following declines in the three previous quarters. Much of the anticipated rise will be due to exports, which, of course, won't count, because it's not the right kind of growth for Japan.
"Who cares where the growth is coming from?" asks Jim Glassman, senior US economist at J.P. Morgan Chase. "The message is that the tide is rising everywhere, which means you've got momentum."
Every country, it seems, wants the kind of growth it doesn't have. And they all want capital spending to legitimize their recoveries.
Sorry. It doesn't work that way. The nature of the various economies -- whether they're prone to save or spend, whether their markets are open or closed, whether the investment climate is attractive or unattractive, whether their currencies are weak or strong -- will determine the mix of growth. And as for the dearth of global capital spending, it will improve along with corporate profitability.
The US is well on its way toward achieving that outcome.
Profits from current production rose 0.5 percent (not annualized) in the first quarter following a 17.9 percent increase in the fourth, according to the Commerce Department. The increase was smaller than expected and owed to the fact that foreign companies increased their earnings from US operations, which are subtracted from the total since foreign businesses aren't US residents, according to the Commerce Department.
As to the growth envy from one country to the next, give it up. A rising tide lifts all boats. An expanding economy eventually lifts all sectors.
It's a mistake to expect the previous cycle's pattern of growth to repeat itself this time around.
"Growth always changes," says Joe Carson, an economist at Alliance Capital Management, sounding a bit like Chauncey Gardiner. "Policy changes. This time we're getting more from government and investment tied to government. It's an old-style recovery in a new economy."
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