The new GDP figures offer a reminder that one can’t analyze movements in GDP by looking at components of GDP. We saw huge increases in spending on cars (pushing consumer durables up by 15.3%) and houses (up 19.1%.) And yet overall RGDP growth fell to only 2.2%. Why didn’t the spending on cars and houses help? Because in the short run it’s NGDP growth that drives RGDP. And the Fed continued its tight money policy by allowing only 3.8% NGDP growth, same as the previous quarter.
This report alludes to the fallacy of trying to analyze GDP by looking at sectors:
While the unseasonably warm weather helped the economy by boosting home building and renovations, it undercut demand for utilities, spending at ski resorts and sales of winter apparel.
If consumers spend more in one area they spend less in another area. What you need to do is change the total amount that consumers are spending, and only the Fed can do that. Sectors don’t matter, and government is just another sector (as long as Bernanke is determined to keep inflation at 2%.)
Of course this also explains why RGDP kept growing during the Great Housing Construction Crash of early 2006 to mid-2008. The Fed kept NGDP growing at a decent clip.
Update: This Karl Smith post suggests the GDP number may eventually be revised upward.