Minnesota’s Economic News — W/E 5/13/22
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I wrote recently that slashed growth forecasts showed that inflation isn’t rising because the economy is booming. Members of the Biden administration have blamed rising consumer prices on the economy’s vigorous recovery from the COVID-19 pandemic. I noted that, contrary to this, the Atlanta Fed’s GDPNow tracker was forecasting real Gross Domestic Product (GDP) growth of just 0.5 percent for the third quarter of 2021 and that this was down from a forecast of 6 percent growth in late August.
The numbers are in and that forecast was about right. Today, the Bureau of Economic Analysis (BEA) announced that real GDP increased at an annual rate of 2.0 percent in the third quarter of 2021 according to its “advance” estimate. This works out at a quarterly rate of just 0.5 percent.
As Figure 1 shows, this represents a marked slowdown in economic growth. Of course, it would be unrealistic to expect the ‘snapback’ growth of the third quarter of 2020 to continue, but it is concerning that the economy’s recovery from COVID-19 seems to have effectively ended already, at least for the time being. As Figure 2 shows, the economy is still $598 billion — or 3 percent — smaller than it would have been had the average rate of economic growth from the first quarter of 2017 to the fourth quarter of 2019 been maintained.
Figure 1: Real GDP growth rates
Source: Bureau of Economic Analysis
Figure 2: Real GDP growth, 2019:Q4 = 100
Source: Center of the American Experiment
As I noted recently, the Biden administration’s favorite whipping boy — the ‘unvaccinated’ — cannot be blamed for much of this slowdown in economic growth. While we do see a highly significant positive relationship between state vaccination rates and job growth, we also see that variations in state vaccination rates account for just 2.7 percent of the variation in state job growth.
These numbers deal a fresh blow to the Biden administration’s argument that rising inflation reflects how well the economy is doing.