Then and now

Five years is a long time for US economy

Five years is a long time for the US economy. First-quarter GDP contracted at a surprisingly high 2.9 per cent annualised rate in the final accounting released by the Bureau of Economic Analysis on Wednesday. That's the biggest drop since the first three months of 2009. Back then, output, jobs, investment, trade and the markets were heading in a different direction.

The latest downward revisions were primarily a result of a decline in net exports and healthcare consumption. If weather was to blame for the trade figures, as was probably the case, then much of it will bounce back. Meanwhile, the effects of President Barack Obama's Affordable Care Act, which was enacted on January 1, also may have proven difficult to assess. Estimates had been for an increase in spending.

Even so, the decline in output was significant and a sharp reversal from the original indication that the economy had grown a tiny bit, and a subsequent revision of a one per cent annualized decline. The times, however, they have a-changed. When US output movement was last anywhere near as bad was around the nadir of the recession, when GDP fell at a run-rate of 5.4 per cent a half-decade ago. Then, however, the decline was 3.5 per cent from a year earlier. This time around, economic activity is up 1.5 per cent from a year ago.

Other conditions are also markedly distinct. Five years ago, the United States was losing nearly 800,000 jobs a month. It is now adding them at a monthly rate of nearly 200,000. In early 2009, all-important fixed investment subtracted a whopping 4.8 percentage points from GDP; in the latest quarter, such purchases of homes and equipment fell only about a quarter of a percentage point, almost certainly due to the abundant snow. Meanwhile, the S&P 500 Index is up nearly 200 per cent.

Despite some other recent signs of sluggishness, including a fall in productivity, the government's latest assessment of the economy hardly fazed investors. In fact, analysts at Barclays promptly raised their second-quarter GDP growth rate forecast from three per cent to four per cent. Rhyming economic declines clearly aren't all the same.