The 3.2 percent growth rate of real GDP in the first quarter (released by BEA yesterday) confirms that the recovery is looking more U-shaped than V-shaped. But it also provides further evidence that the stimulus package of 2009 has had a small contribution to the recovery. Most of the recovery has been due to investment—including inventory investment, which was positive in the first quarter after declining for all of last year—and has little to do with discretionary stimulus packages. The two charts show the percentage contribution of investment and government purchases to real GDP growth in the first quarter and in the preceding quarters since 2007. The charts clearly indicate that the changes in real GDP growth have been mostly due to changes in investment and little to changes in government purchases. In fact, government purchases have been a drag (a negative contribution to real GDP growth) in the fourth quarter of 2009 and the first quarter of 2010. I also include similar charts for the other two components of GDP, consumption and net exports. The government purchases chart looks very similar if you exclude defense spending, as I have in previous posts on this subject.
In response to these previous posts, some have argued that government spending might have declined by a larger amount without the stimulus because the stimulus package prevented state and local government from cutting spending. More research is needed to determine what would have happened in the counterfactual of “no discretionary stimulus,” but in the meantime these data at the least suggest that the simple Keynesian model frequently taught to beginning students—in which government spending shifts up the aggregate spending line to counteract an investment-induced downward shift in that line—needs to be reworked.