10 ms·

The US economy shrank at an annualized rate of 2.9 percent in Q1

79 points by Bahamut 12y ago

deadfish 12y ago
Whose economy?
- wutbrodo 12y ago
  The article is from the Washington Post so you can probably assume it's the US economy.
sp332 12y ago
The economy shrank at an annualized rate of 2.9% over one quarter. That's 2.9% / 4 ~= 0.7% in Q1.
- smrtinsert 12y ago
  Could you explain this please?
  - jerf 12y ago
    "If every quarter this year was the same as this one, it would be a 2.9% decline for the year." sp332 uses the ~= symbols for approximately equal because technically you can't just divide the percentage by four like that. 2.9%/4 = .725% (exactly), but technically four quarters at .725% shrink each would produce 100%-((100%-.725%)^4) for the year, which is a 2.869...% decrease, not exactly 2.9%. But for small percents being compounded a small number of times it is a decent approximation, in this case thoroughly dominated by measurement inaccuracies and noise levels; the small percentage and the small number of compoundings work together to keep the error very small.
    - sp332 12y ago
      Do you really think it's being compounded like that? I hadn't thought of that.
      - jerf 12y ago
        Uh... are you sure you didn't think of that? ;) Anyways, for the reasons given above, it's indistinguishable. If the economy was changing rapidly enough for it to matter, well, since it can pretty much only shrink at sufficient rates to make a difference we'd probably all have better things to do than argue about compounding correctly... But it is worth reminding people you can't do than in general, because it is easy to forget. See also the Rule of 72: http://en.wikipedia.org/wiki/Rule_of_72 http://en.wikipedia.org/wiki/Rule_of_72
  - deleted 12y ago
    [deleted]
  - kinghajj 12y ago
    Meaning that if the rate of decline experienced in Q1 continued throughout the year, then the annual shrinkage would be about 3%. 1.0074^4 is about 1.03, so the actual shrinkage for the quarter in question was 0.74%.
  - logicallee 12y ago
    if the economy shrinks by 0.05% on the Sunday before thanksgiving, you could annualize that by multiplying by 365 and getting an 18.25% shrink in the size of the American economy on that day. It would be an extremely false statement to write, "The U.S. Economy contracted by 18.25% on Sunday before Thanksgiving", which is how our title reads. ("The economy shrank almost 3 percent in Q1"). The number 3% doesn't appear anywhere, just as the number 18.25% doesn't appear anywhere. sp332's very good point is that it should include the word "annualized" or read "0.7%". A huge difference!
- deleted 12y ago
  [deleted]
- badman_ting 12y ago
  I remember idle moments during soccer games I played as a kid. I would sometimes think to myself "OK, we're up 1-0. If the rest of the game goes at this rate, we will definitely win." The problem with that reasoning is the word "if".
- clintonc 12y ago
  Math pedant to the rescue! Actually, rates combine in a multiplicative way -- losing 3% and then 4% does not lose 7%, (though it's close). What if the economy lost 1% each day for a year? It would not lose 365%. If we assume the annualized rate, the economy would be 97.1% of its current size in a year. The fourth root is 99.267%, so the economy shrank about 0.733% this quarter. If it does so for four consecutive quarters, it will decrease by 2.9%. I know that's what you said in the first place, but when extrapolating further into the future, it makes a difference.
  - sp332 12y ago
    Actually I didn't think about annualized rates compounding like that, although it makes sense now that you mention it :)
  - conistonwater 12y ago
    Math pedants of the world: If you calculate 1-(1-x)^(1/4), the difference between the true answer and x/4 is approximately 3 * x^2/32. For a figure of y percent, this is a relative error of 0.375 * y percent. Ignore it when y is small. The GDP figure is only known to something like 1 or 2 decimal places.
    - deleted 12y ago
      [deleted]
    - mtdewcmu 12y ago
      If I'm not mistaken, if you keep following that thread, somehow or other you eventually get e. I hope that wasn't too much pedantry.
dang 12y ago
Since the comments so far have been only about the title, we edited the title to address these objections.
memossy 12y ago
The most interesting component of this was the healthcare drag in the revisions taking it down from the initial ones. While a large element of this was the affordable care act, it is also notable that healthcare inflation went negative for the first time in 20 odd years last quarter (education did too, but thats another story). Given the US currently spends twice the amount of other countries on its health care as a % of GDP (14%) for similar health outcomes and individuals are being significantly disincented to spend on healthcare via subsidies and high deductibles respectively, I think we will see increasing normalisation of healthcare spend to levels under 10% of GDP, a huge drag on GDP. This will be further accelerated by smartphone and biometric proliferation allowing for easier and more reliable diagnosis and treatment choice. Interesting times.
- refurb 12y ago
  Unfortunately the ACA doesn't do much to address increasing healthcare costs. There are a few initiatives (comparative medicine funding is one that comes to mind) that are good starts, but the ACA is likely to lead to overall higher GDP expenditures on healthcare in the US, not lower, as more and more uninsured have access to care.
  - clavalle 12y ago
    Your analysis assumes healthcare is like any other commodity. While the primary aim of the ACA is not overall cost reduction (but, rather, make it affordable for the uninsured to get insurance), there are several reasons it could go down that path. The marketplaces and minimum standards for insurance plans make it easier to comparison shop. The fact that people will have insurance will lead to earlier and cheaper treatments for potentially serious disease. Businesses can get out of the insurance business altogether. As businesses remove themselves from the equation individuals will be more attuned to the cost of their insurance plans and shop accordingly. There are some direct provisions for paying providers for disease prevention and effective treatments that lead to patients not having to return for the same issue rather than just for treatments reversing that twisted financial incentive. Granted, there are plenty of ways for these potential cost benefits to go sour but there is a good chance that the ACA will actually reduce costs relative to what they would have been without the ACA.
mikeash 12y ago
Can anybody who understands this stuff better than I do comment on the winter weather factor? To me, the "winter sucked" excuse sounds like complete BS, a transparent lie along the lines of, "Well, I just didn't want to order the tide to stop right now." This is a massive change (down a total of 7% or so from two quarters prior) and surely the weather, while unusual, wasn't that strong. But maybe it really is a big factor. I'm far from an expert. Can anyone comment on whether the weather (heh) reasoning is sane?
- pyre 12y ago
  Well, the effects of the winter can be: - Damage due to harsh weather causing a net drag on businesses, causing them to be more conservative with spending. - All of the store, school, etc closures due to inclement weather. - Even without store closures, many people are less likely to leave their homes (i.e. spend money) when the weather is bad, even if the weather isn't 'snow day' bad. I feel that it's probably unlikely to be entirely due to the weather, but I don't think that we can discount the effects a harsh winter can have.
- btilly 12y ago
  Let's run some fake numbers to see. A quarter is roughly 91 days. About 65 of which are week days, and that is where most economic activity happens. Suppose that bad weather costs you 30% of economic activity in half the country for just one of those week days. That works out to losing 0.23% of the quarter's economic activity. But we are using a quarter to estimate annual growth, so that now looks like losing 0.92% annualized growth. From one day of disruption over part of the country. As you see, blip from a bad winter storm on the East Coast really can cause the economy look like it is headed in a much worse direction than it is for a quarter.
- gone35 12y ago
  It's not intuitive, but since building sites must halt work during strong winter days, a large increase in the number of 'snow days' has an outsize effect on the total output of the construction sector --one of the largest sectors of the US economy-- during Q1. This past winter was peculiar in that regard because not only there were more snowstorms overall than the previous year, but also there were major snowstorms in regions that seldom see that kind of weather like the South. And it shows in the figures for residential and commercial building during the quarter. These seasonalities however are well understood and don't matter nearly as much, in part because construction companies often catch up on their delayed projects during the subsequent quarter. This is one the reasons why reading too much into annualized quarterly fluctuations can be misleading at times [1]. [1] http://jaredbernsteinblog.com/whoa-whassup-with-that-big-negative-q1-gdp-revision/ http://jaredbernsteinblog.com/whoa-whassup-with-that-big-neg...
maerF0x0 12y ago
Seems to me the idea of declaring a shrinking economy in terms of $ doesnt make sense. What if the average price of things is dropping (eg Healthcare)? To me it seems the goal should just be how much stuff did we make? If that number went up, then good (except corn).
- jiggy2011 12y ago
  How would you define "stuff" and "make"? Especially with regards to financial services etc.
  - imaginenore 12y ago
    When it comes to the financial services, we can simply measure the cocaine consumption.
- pessimizer 12y ago
  >Seems to me the idea of declaring a shrinking economy in terms of $ doesnt make sense. What if the average price of things is dropping (eg Healthcare)? We know what inflation is, and that the price of healthcare is not dropping. >To me it seems the goal should just be how much stuff did we make? If that number went up, then good (except corn). We also know about the trade deficit: http://www.businessinsider.com/us-trade-balance-march-2014-2014-5 http://www.businessinsider.com/us-trade-balance-march-2014-2...
- bengali3 12y ago
  Do you mean the total creation of goods in the US? To compare apples to oranges (literally) we compare their dollar values and call it GDP. comparing the 'count' of things wouldn't be as useful as we could make a whole bunch of things that no one wants and call it productivity.
- lotsofmangos 12y ago
  Why do you think a rise in corn production is bad? Also, in what units are you going to measure the total amount of stuff made, if not in currency?
pessimizer 12y ago
A stock market recovery is not a "recovery." Prime-age employment: http://data.bls.gov/timeseries/LNS12300060 http://data.bls.gov/timeseries/LNS12300060 Median wealth, and the median wealth of various segments: http://finance.yahoo.com/blogs/daily-ticker/for-most-families--wealth-has-vanished-172130204.html http://finance.yahoo.com/blogs/daily-ticker/for-most-familie... Median income: http://advisorperspectives.com/dshort/updates/Median-Household-Income-Update.php http://advisorperspectives.com/dshort/updates/Median-Househo... Wealthy people cannot drive consumption, because they spend a far smaller part of their income on it. edit: I intentionally use the prime age employment rate (as is convention of late) in order to avoid objections that the low employment rate is the fault of a large segment of baby boomers retiring. The general numbers look worse, not better: http://data.bls.gov/timeseries/LNS12300000 http://data.bls.gov/timeseries/LNS12300000
- sillysaurus3 12y ago
  That unemployment graph is rather breathtaking, both because it illustrates how impactful the '08 crash was, and how little we've recovered since then. Is there any chance that the graph could be misleading, or should it be believed at face value that one in four people are unemployed?
  - opendais 12y ago
    The graph represents a 4% chance in the size of the active labor force. In good times, 1 in 5 people don't work. So saying 1 in 4 is a massive change [when it is 5%] isn't really correct. It also is only 'prime' so 25-54. 55-65, people still work. Same with under 25.
    - toomuchtodo 12y ago
      > It also is only 'prime' so 25-54. 55-65, people still work. Same with under 25. Does the Social Security Administration release data on the number of people collecting SS benefits who are also working? Very interested in the number of people delaying retirement in order to keep working (either because base SS doesn't cover their living expenses, or because they're delaying collecting SS to increase their monthly benefit).
cs702 12y ago
TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borrowed aggressively to finance consumption, like drunken sailors... but unlike the financial sector, they never got a bailout. They were forced by the circumstances to follow Steve Martin's advice from Saturday Night Live: "don't buy stuff you cannot afford."[2] Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis? -- Edits: modified first paragraph to convey what I actually meant to say, in response to ctl's comment. The original paragraph was poorly written. (Thanks for pointing out the inconsistency, ctl!) -- [1] http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp.html http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp... [2] https://screen.yahoo.com/dont-buy-stuff-000000884.html https://screen.yahoo.com/dont-buy-stuff-000000884.html
- executor14 12y ago
  Actual TLDR: Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.
  - itbeho 12y ago
    Looks to me like it's how the government is accounting for spending in healthcare that is the biggest contributor to these numbers. Next quarter they will report big gains, just in time for campaign season and the run up to the election. http://www.businessinsider.com/why-health-care-spending-in-gdp-obamacare-2014-6 http://www.businessinsider.com/why-health-care-spending-in-g...
    - executor14 12y ago
      Weather and botched implementation of the healthcare exchanges probably also played a part in that. But for whatever reason seems the increase in healthcare spending will be delayed for a quarter or two.
snake_plissken 12y ago
Real interest rates are negative and credit is tight. Credit has been tight for some time, but there is some debate as to when the real interest rate went below zero. These two factors will cause the US economy to (eventually) shrink because ~65% of its component parts reflect economic activities based on consumption. The economy can not expand because dollars that have historically gone into consumption are being invested into Treasuries. This has the effect of keeping yields on treasury notes down, which causes real interest rates to go below zero. A negative real interest rate environment implies investors are willing to take a small loss if it means they can avoid bigger losses on other investments.
muzz 12y ago
What does this article have to do with Hacker News? Note the decidedly different tone from this entry on the same Washington Post Wonkblog: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/25/the-economy-just-had-its-worst-quarter-since-the-great-recession-heres-why-you-shouldnt-worry/ http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/25/t...
- esbranson 12y ago
  Everything and nothing. Nothing to do with computers, everything to do with hype and name recognition. Besides, computers are just tools. A means to an end. To the hammer designer, is a discussion about home building relevant? The economics of home building? The economics of people buying homes? The psychology of homebuyers? Is psychology relevant to hammer design? Maybe. Relevance is complicated.
deleted 12y ago
[deleted]
joesmo 12y ago
"Recession-like. It is astounding that we are using any variation of that word five years into the recovery." No, it's not. There is little to no recovery. The only surprising thing about analysis like this is how far the author goes to avoid explicitly stating this when it's so implicit in the article.

79 points by Bahamut 12y ago

deadfish 12y ago

Whose economy?

wutbrodo 12y ago
The article is from the Washington Post so you can probably assume it's the US economy.

sp332 12y ago

The economy shrank at an annualized rate of 2.9% over one quarter. That's 2.9% / 4 ~= 0.7% in Q1.

smrtinsert 12y ago
Could you explain this please?
- jerf 12y ago
  "If every quarter this year was the same as this one, it would be a 2.9% decline for the year." sp332 uses the ~= symbols for approximately equal because technically you can't just divide the percentage by four like that. 2.9%/4 = .725% (exactly), but technically four quarters at .725% shrink each would produce 100%-((100%-.725%)^4) for the year, which is a 2.869...% decrease, not exactly 2.9%. But for small percents being compounded a small number of times it is a decent approximation, in this case thoroughly dominated by measurement inaccuracies and noise levels; the small percentage and the small number of compoundings work together to keep the error very small.
  - sp332 12y ago
    Do you really think it's being compounded like that? I hadn't thought of that.
    - jerf 12y ago
      Uh... are you sure you didn't think of that? ;) Anyways, for the reasons given above, it's indistinguishable. If the economy was changing rapidly enough for it to matter, well, since it can pretty much only shrink at sufficient rates to make a difference we'd probably all have better things to do than argue about compounding correctly... But it is worth reminding people you can't do than in general, because it is easy to forget. See also the Rule of 72: http://en.wikipedia.org/wiki/Rule_of_72 http://en.wikipedia.org/wiki/Rule_of_72
- deleted 12y ago
  [deleted]
- kinghajj 12y ago
  Meaning that if the rate of decline experienced in Q1 continued throughout the year, then the annual shrinkage would be about 3%. 1.0074^4 is about 1.03, so the actual shrinkage for the quarter in question was 0.74%.
- logicallee 12y ago
  if the economy shrinks by 0.05% on the Sunday before thanksgiving, you could annualize that by multiplying by 365 and getting an 18.25% shrink in the size of the American economy on that day. It would be an extremely false statement to write, "The U.S. Economy contracted by 18.25% on Sunday before Thanksgiving", which is how our title reads. ("The economy shrank almost 3 percent in Q1"). The number 3% doesn't appear anywhere, just as the number 18.25% doesn't appear anywhere. sp332's very good point is that it should include the word "annualized" or read "0.7%". A huge difference!
deleted 12y ago
[deleted]
badman_ting 12y ago
I remember idle moments during soccer games I played as a kid. I would sometimes think to myself "OK, we're up 1-0. If the rest of the game goes at this rate, we will definitely win." The problem with that reasoning is the word "if".
clintonc 12y ago
Math pedant to the rescue! Actually, rates combine in a multiplicative way -- losing 3% and then 4% does not lose 7%, (though it's close). What if the economy lost 1% each day for a year? It would not lose 365%. If we assume the annualized rate, the economy would be 97.1% of its current size in a year. The fourth root is 99.267%, so the economy shrank about 0.733% this quarter. If it does so for four consecutive quarters, it will decrease by 2.9%. I know that's what you said in the first place, but when extrapolating further into the future, it makes a difference.
- sp332 12y ago
  Actually I didn't think about annualized rates compounding like that, although it makes sense now that you mention it :)
- conistonwater 12y ago
  Math pedants of the world: If you calculate 1-(1-x)^(1/4), the difference between the true answer and x/4 is approximately 3 * x^2/32. For a figure of y percent, this is a relative error of 0.375 * y percent. Ignore it when y is small. The GDP figure is only known to something like 1 or 2 decimal places.
  - deleted 12y ago
    [deleted]
  - mtdewcmu 12y ago
    If I'm not mistaken, if you keep following that thread, somehow or other you eventually get e. I hope that wasn't too much pedantry.

dang 12y ago

Since the comments so far have been only about the title, we edited the title to address these objections.

memossy 12y ago

The most interesting component of this was the healthcare drag in the revisions taking it down from the initial ones. While a large element of this was the affordable care act, it is also notable that healthcare inflation went negative for the first time in 20 odd years last quarter (education did too, but thats another story). Given the US currently spends twice the amount of other countries on its health care as a % of GDP (14%) for similar health outcomes and individuals are being significantly disincented to spend on healthcare via subsidies and high deductibles respectively, I think we will see increasing normalisation of healthcare spend to levels under 10% of GDP, a huge drag on GDP. This will be further accelerated by smartphone and biometric proliferation allowing for easier and more reliable diagnosis and treatment choice. Interesting times.

refurb 12y ago
Unfortunately the ACA doesn't do much to address increasing healthcare costs. There are a few initiatives (comparative medicine funding is one that comes to mind) that are good starts, but the ACA is likely to lead to overall higher GDP expenditures on healthcare in the US, not lower, as more and more uninsured have access to care.
- clavalle 12y ago
  Your analysis assumes healthcare is like any other commodity. While the primary aim of the ACA is not overall cost reduction (but, rather, make it affordable for the uninsured to get insurance), there are several reasons it could go down that path. The marketplaces and minimum standards for insurance plans make it easier to comparison shop. The fact that people will have insurance will lead to earlier and cheaper treatments for potentially serious disease. Businesses can get out of the insurance business altogether. As businesses remove themselves from the equation individuals will be more attuned to the cost of their insurance plans and shop accordingly. There are some direct provisions for paying providers for disease prevention and effective treatments that lead to patients not having to return for the same issue rather than just for treatments reversing that twisted financial incentive. Granted, there are plenty of ways for these potential cost benefits to go sour but there is a good chance that the ACA will actually reduce costs relative to what they would have been without the ACA.

mikeash 12y ago

Can anybody who understands this stuff better than I do comment on the winter weather factor? To me, the "winter sucked" excuse sounds like complete BS, a transparent lie along the lines of, "Well, I just didn't want to order the tide to stop right now." This is a massive change (down a total of 7% or so from two quarters prior) and surely the weather, while unusual, wasn't that strong. But maybe it really is a big factor. I'm far from an expert. Can anyone comment on whether the weather (heh) reasoning is sane?

pyre 12y ago
Well, the effects of the winter can be: - Damage due to harsh weather causing a net drag on businesses, causing them to be more conservative with spending. - All of the store, school, etc closures due to inclement weather. - Even without store closures, many people are less likely to leave their homes (i.e. spend money) when the weather is bad, even if the weather isn't 'snow day' bad. I feel that it's probably unlikely to be entirely due to the weather, but I don't think that we can discount the effects a harsh winter can have.
btilly 12y ago
Let's run some fake numbers to see. A quarter is roughly 91 days. About 65 of which are week days, and that is where most economic activity happens. Suppose that bad weather costs you 30% of economic activity in half the country for just one of those week days. That works out to losing 0.23% of the quarter's economic activity. But we are using a quarter to estimate annual growth, so that now looks like losing 0.92% annualized growth. From one day of disruption over part of the country. As you see, blip from a bad winter storm on the East Coast really can cause the economy look like it is headed in a much worse direction than it is for a quarter.
gone35 12y ago
It's not intuitive, but since building sites must halt work during strong winter days, a large increase in the number of 'snow days' has an outsize effect on the total output of the construction sector --one of the largest sectors of the US economy-- during Q1. This past winter was peculiar in that regard because not only there were more snowstorms overall than the previous year, but also there were major snowstorms in regions that seldom see that kind of weather like the South. And it shows in the figures for residential and commercial building during the quarter. These seasonalities however are well understood and don't matter nearly as much, in part because construction companies often catch up on their delayed projects during the subsequent quarter. This is one the reasons why reading too much into annualized quarterly fluctuations can be misleading at times [1]. [1] http://jaredbernsteinblog.com/whoa-whassup-with-that-big-negative-q1-gdp-revision/ http://jaredbernsteinblog.com/whoa-whassup-with-that-big-neg...

maerF0x0 12y ago

Seems to me the idea of declaring a shrinking economy in terms of $ doesnt make sense. What if the average price of things is dropping (eg Healthcare)? To me it seems the goal should just be how much stuff did we make? If that number went up, then good (except corn).

jiggy2011 12y ago
How would you define "stuff" and "make"? Especially with regards to financial services etc.
- imaginenore 12y ago
  When it comes to the financial services, we can simply measure the cocaine consumption.
pessimizer 12y ago
>Seems to me the idea of declaring a shrinking economy in terms of $ doesnt make sense. What if the average price of things is dropping (eg Healthcare)? We know what inflation is, and that the price of healthcare is not dropping. >To me it seems the goal should just be how much stuff did we make? If that number went up, then good (except corn). We also know about the trade deficit: http://www.businessinsider.com/us-trade-balance-march-2014-2014-5 http://www.businessinsider.com/us-trade-balance-march-2014-2...
bengali3 12y ago
Do you mean the total creation of goods in the US? To compare apples to oranges (literally) we compare their dollar values and call it GDP. comparing the 'count' of things wouldn't be as useful as we could make a whole bunch of things that no one wants and call it productivity.
lotsofmangos 12y ago
Why do you think a rise in corn production is bad? Also, in what units are you going to measure the total amount of stuff made, if not in currency?

pessimizer 12y ago

A stock market recovery is not a "recovery." Prime-age employment: http://data.bls.gov/timeseries/LNS12300060 http://data.bls.gov/timeseries/LNS12300060 Median wealth, and the median wealth of various segments: http://finance.yahoo.com/blogs/daily-ticker/for-most-families--wealth-has-vanished-172130204.html http://finance.yahoo.com/blogs/daily-ticker/for-most-familie... Median income: http://advisorperspectives.com/dshort/updates/Median-Household-Income-Update.php http://advisorperspectives.com/dshort/updates/Median-Househo... Wealthy people cannot drive consumption, because they spend a far smaller part of their income on it. edit: I intentionally use the prime age employment rate (as is convention of late) in order to avoid objections that the low employment rate is the fault of a large segment of baby boomers retiring. The general numbers look worse, not better: http://data.bls.gov/timeseries/LNS12300000 http://data.bls.gov/timeseries/LNS12300000

sillysaurus3 12y ago
That unemployment graph is rather breathtaking, both because it illustrates how impactful the '08 crash was, and how little we've recovered since then. Is there any chance that the graph could be misleading, or should it be believed at face value that one in four people are unemployed?
- opendais 12y ago
  The graph represents a 4% chance in the size of the active labor force. In good times, 1 in 5 people don't work. So saying 1 in 4 is a massive change [when it is 5%] isn't really correct. It also is only 'prime' so 25-54. 55-65, people still work. Same with under 25.
  - toomuchtodo 12y ago
    > It also is only 'prime' so 25-54. 55-65, people still work. Same with under 25. Does the Social Security Administration release data on the number of people collecting SS benefits who are also working? Very interested in the number of people delaying retirement in order to keep working (either because base SS doesn't cover their living expenses, or because they're delaying collecting SS to increase their monthly benefit).

cs702 12y ago

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borrowed aggressively to finance consumption, like drunken sailors... but unlike the financial sector, they never got a bailout. They were forced by the circumstances to follow Steve Martin's advice from Saturday Night Live: "don't buy stuff you cannot afford."[2] Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis? -- Edits: modified first paragraph to convey what I actually meant to say, in response to ctl's comment. The original paragraph was poorly written. (Thanks for pointing out the inconsistency, ctl!) -- [1] http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp.html http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp... [2] https://screen.yahoo.com/dont-buy-stuff-000000884.html https://screen.yahoo.com/dont-buy-stuff-000000884.html

executor14 12y ago
Actual TLDR: Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.
- itbeho 12y ago
  Looks to me like it's how the government is accounting for spending in healthcare that is the biggest contributor to these numbers. Next quarter they will report big gains, just in time for campaign season and the run up to the election. http://www.businessinsider.com/why-health-care-spending-in-gdp-obamacare-2014-6 http://www.businessinsider.com/why-health-care-spending-in-g...
  - executor14 12y ago
    Weather and botched implementation of the healthcare exchanges probably also played a part in that. But for whatever reason seems the increase in healthcare spending will be delayed for a quarter or two.

snake_plissken 12y ago

Real interest rates are negative and credit is tight. Credit has been tight for some time, but there is some debate as to when the real interest rate went below zero. These two factors will cause the US economy to (eventually) shrink because ~65% of its component parts reflect economic activities based on consumption. The economy can not expand because dollars that have historically gone into consumption are being invested into Treasuries. This has the effect of keeping yields on treasury notes down, which causes real interest rates to go below zero. A negative real interest rate environment implies investors are willing to take a small loss if it means they can avoid bigger losses on other investments.

muzz 12y ago

What does this article have to do with Hacker News? Note the decidedly different tone from this entry on the same Washington Post Wonkblog: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/25/the-economy-just-had-its-worst-quarter-since-the-great-recession-heres-why-you-shouldnt-worry/ http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/25/t...

esbranson 12y ago
Everything and nothing. Nothing to do with computers, everything to do with hype and name recognition. Besides, computers are just tools. A means to an end. To the hammer designer, is a discussion about home building relevant? The economics of home building? The economics of people buying homes? The psychology of homebuyers? Is psychology relevant to hammer design? Maybe. Relevance is complicated.

deleted 12y ago

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joesmo 12y ago

"Recession-like. It is astounding that we are using any variation of that word five years into the recovery." No, it's not. There is little to no recovery. The only surprising thing about analysis like this is how far the author goes to avoid explicitly stating this when it's so implicit in the article.