Real GDP Q1 2019

The annualized percentage change in real GDP was announced by the US government recently. Real GDP rose by an annualized 3.2% in the first quarter of 2019. Like all the similar announcements, this one will be revised several times before we settle on how much real GDP rose in Q1 2019.

In the meantime we are stuck with interpreting the 3.2%. Mostly we want to know if it represents a change from the past. Many people were quite happy with a number like 3.2%. It sounds good and it tastes nice like a nice JD old fashioned. If the number had been 1.2% we would have scowled and worried that something might be seriously wrong with the US economy.

So I decided to take a look at quarterly real GDP over the past 10 years. The data I present begins in Q1 of 2010 and stretches through Q1 2019. Thus we have 109 data points in those 9 plus years.

The data are presented graphically for you below. At the far right is the 3.2% of Q1 2019. Looking back across all the points you quickly notice that the 3.2% is neither the highest nor the lowest number  on the chart. In 2014 there were clearly some better results. Looking across you can count 13 quarters when real GDP grew by more than 3.2%. So one point to make is that the 3.2% is strong but not any sort of peak.

What else jumps out at you from the chart?

One thing is the volatility. The average one-quarter change was about 2.3%. So the 3.2% was well above the average. But does it mean next quarter or future quarters will be above the mean? Notice all the ups and downs in the chart. There are at least 10 episodes in which the real GDP change increased only to be followed by one or more decreases. Notice the two peaks in 2014. Following those peaks were about two years in which the rate generally declined.

Two points so far. The 3.2% is well above the mean quarterly change but it is not especially strong. Second, a rise in real GDP growth is not necessarily followed by more growth.

Third, since early 2016, the graph does start to look different. There is less volatility and there does seem to be a general upward trend in quarterly growth rates. This might give the expectation that this trend will continue with quarterly increases of at least 3% or more.

Some of you are fidgeting because you know that thinking about the future of the economy ought to bring in real cause and effect. If post 2015 is different, then why is it different? I am sure Trump's people will disagree with Obama's. Is the post 2015 performance the result of Obama's policies finally maturing after a long adjustment from a major economic recession? Or does the post 2015 growth register changes brought in by Trump's administration?

Politics aside, it is not easy to answer these questions. Maybe the dots have nothing to do with Obama or Trump? And of course, it is also possible that the post 2015 apparent upward trend will begin to vanish in July when we get the Q2 2019 numbers.

I stick with my love of persistence. Without one of the risk factors turning the world on its head, I like the idea that employment growth causes spending which causes output which causes more employment, spending, output, and employment.

I can't be sure of exactly why post 2015 real GDP growth is rising but I do think momentum could carry us for a while.