•Press Release
July 27, 2007
GDP Byte by Dean Baker
For Immediate Release: July 27, 2007
Contact: Alan Barber, (202) 293-5380 x 115
Revisions show that profit shares have not increased much since the 90s.
The economy grew at a respectable 3.4 percent annual rate in the 2nd quarter, driven by strong growth in structure investment, government expenditures and a reduction in the size of the trade deficit. However, with hours also growing at a healthy pace, productivity growth is likely to come in at under 2.0 percent for the quarter. This performance, coupled with downward revisions to GDP growth, puts the average rate of productivity growth since the 2nd quarter of 2004 at 1.5 percent, the same rate as during the long slowdown from 1973-1995. The prolonged weakness is productivity growth must raise questions as to whether the post-1995 uptick is over.
The report gives reasons for questioning whether the economy can sustain a healthy growth pace going forward. The improvement in the trade deficit accounted for more than one-third of the growth reported for the quarter. While trade has been adding to growth in the last year, it is entirely attributable to a slower rate of growth of imports. Exports have actually been growing less rapidly in the last year than in the period from 2004-2006. The deficit will probably trend downward, but at a somewhat slower pace than in the 2nd quarter, barring a sharper fall in the dollar.
A jump in government spending, led by defense, accounted for almost a fourth of the growth in the quarter. This spending is erratic and will almost certainly grow at a slower rate in future quarters. A 22.1 percent surge in structure investment accounted for almost a fifth of 2nd quarter growth. Structure investment was depressed when residential construction was pulling away workers and equipment, which created a backlog. It has now increased by 21.4 percent since the 4th quarter of 2005. It is unlikely to rise much further from its current level.
