Economic Indirection
Keith Hennessey has a graph up today that is very helpful in understanding the weaknesses in our economy:
- The width of each component bar represents its share of GDP.
- The height represents the growth rate of that component. This growth rate is labeled in white immediately above or below that bar.
- The black number within the bar shows that component's contribution to the overall growth rate of -5.5%
The news today is that the nation's economy shrunk at an annualized rate of 5.5% in the first quarter of 2009. Looking at the black numbers in the graph, we can see that individual consumption contributed a positive 1% to the economy, keeping bad news from being worse.
On the other end of the graph, we can see that imports-exports netted a positive 2.4% contribution the economy, although this contribution was mostly offset by shrinking inventories (-2.2%).
The entirety of the contraction can be attributed to business investment, housing and government.
Obama's stimulus focuses almost entirely on government spending, but it's so slow that that sector of the economy is still negative.
Meanwhile, the housing market is still adjusting, and a lack of business investment is a huge drag on the economy.
The stimulus package is focused on government spending - a strategy of execution that is so inefficient that government still contracted - and offers no incentive for business investment - which is the significant portion of the drag on our economy.
While a plan was offered that addressed this situation directly, Congress didn't even get to vote on it.
