GDP and the Bifurcated Economy

The Lehmann Letter (SM)
Today’s GDP report reconfirms our bifurcated economy. Throughout the recovery some data has been strong while other data has been weak.
Sad news first: GDP grew by 1.9% in the first quarter.
The really sad news: GDP growth would have been higher had it not been for government’s continued contraction.
Government spending has fallen since the beginning of 2010. That’s too bad because government spending is within our direct control and could have grown had we desired that. We can’t do much about housing or business investment, but we can and could have seen to it that government expanded. Government could have been the balloon that lifted us higher. Instead it has been the anchor that has held us back.
The good news: This report reconfirms the significant increase in corporate profits to $1,644.9 billion. Take a look at the chart and you will see that this is a big jump. It appeared that earnings had stalled at $1,500 billion or less. Now they are off the chart.

(Click on chart to enlarge)

(Recessions shaded)
Once again we have a bifurcated economy: Some reports have been strong, others weak. That’s not good enough, but it certainly could have been worse.
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© 2012 Michael B. Lehmann