Magazine article Economic Trends

Economic Activity

Magazine article Economic Trends

Economic Activity

Article excerpt

The advance (initial) GDP estimate for 2004:IIQ, released July 30 by the Commerce Department, revealed that annualized real output growth was 3.0%. This is considerably lower than the 4.1% Blue Chip forecast for the quarter.

Personal consumption expenditures were fairly soft in 2004:IIQ, growing at an annual rate of 1.0%. Retailers blame June's unusually cool weather for the month's low consumption expenditures. Expenditures on durables fell 2.5%, which came on the heels of a decline in durables spending in 2004:IQ. In contrast, residential investment was up smartly, rising at an annual rate of 15.4%. Business fixed investment continues to exhibit robust growth.

Given the slowdown in consumption growth, it should not be surprising that consumption's contribution to overall output growth fell sharply in 2004:IIQ. Inventory investment also made a smaller relative contribution. Exports contributed 1.25 points to output growth, but this was more than oftset by imports' -1.3 point contribution.

Recent history cautions against reading too much into an advance GDP estimate. Preliminary and final estimates have been as much as 1 percentage point higher than the advance estimate. Annual revisions to the data can take their toll: The "final" estimate for 2002:IQ was revised down from 6.1% to 3.4% in the 2004 annual revision.

Real per capita income differs both across states and over time. In 1929, average income in the richest state, New York, was 4.3 times that of the poorest, South Carolina. While only 14 of the .18 states had per capita incomes above the U.S. average, these 14 included most of the heavily populated states.

As a rising tide raises all boats, so economic growth has benefited all regions. Moreover, disparities among states' per capita incomes are becoming relatively smaller over time. In 2003, per capita income in the richest state, Connecticut, was not 4.3 (as in 1929), but only 1.8 times that of the poorest state, Mississippi. The reason is that per capita income in a poor state like Mississippi grew at an annual rate of 3.1% between 1929 and 2003, while Connecticut experienced an annual growth rate of 2.1%.

Yet another indication of the convergence in per capita incomes is that in 1929, Mississippi earned 41% of the national average; by 2003, this figure had risen to 74%. …

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