Recovery Without Recovery: 2.7% Growth in 1Q2010

Bloomberg is reporting that last quarter GDP grew at 2.7%:

The U.S. economy grew at a 2.7 percent annual rate in the first quarter, less than previously calculated, reflecting a smaller gain in consumer spending and a bigger trade gap.

The revised increase in gross domestic product was smaller than the median forecast of economists surveyed by Bloomberg News and compares with a 3 percent estimate issued last month, figures from the Commerce Department showed today in Washington. Corporate profits climbed more than previously projected.

The revised figures showed an economy that was more dependent on inventory restocking and less driven by demand from consumers and businesses before the European debt crisis intensified. Unemployment, combined with the turmoil in financial markets and a lack of inflation, are among reasons Federal Reserve policy makers this week reiterated a pledge to keep interest rates low.

That’s barely enough growth to keep up with the “natural increase”, new young workers entering the market, let alone to bring the millions who’ve lost their jobs since 2007 back into the labor force.

I’ve also got to say that I’m highly skeptical that the capital spending by businesses I’m hearing about (and even seeing a little bit of in my clients) portends hiring to come. The planned obsolescence of much technology virtually guarantees cyclical capital spending and capital spending may be a substitute for hiring rather than supportive of it.

It’s hard for me to see how some of the things that need to happen can be accomplished. Hiring, business formation, and growth continue to have strong regional variation. Current policy supports the unemployed staying in the same place. I’m also afraid that wages need to fall but the areas where they need to fall the most have enough clout that they’ll be able to fend it off, possibly indefinitely.