Photo

OK, that was a seriously impressive GDP report — 5 percent growth rate, and it’s all final demand rather than an inventory bounce. But what does it mean?

It does not necessarily mean that now is the time to tighten; that depends mainly on how far we still are from target employment and inflation, not on how fast we’re growing. Remember, the US economy grew 10 percent in 1934, which didn’t mean that the Depression was anywhere near over. With inflation still low and not accelerating, this report at most suggests that the Fed might get there a bit sooner than previously expected. It’s interesting to note that the bond market seems quite unimpressed, with only a slight uptick in long-term rates.

What the report should do, however, is further discredit the “Ma, he’s looking at me funny!” theory of the Obama economy. Remember, we were supposed to be having the worst recovery ever because Obama was a Kenyan socialist who scared businessmen. Actually, it’s a better recovery than the alleged Bush boom – and what’s really striking, as you can see from the chart, is how strong nonresidential investment — essentially, business investment — has been; all the weakness has been in housing.

Of course, you can count on hearing, any minute now, from people claiming that the numbers are cooked — we really have plunging output and double-digit inflation, plus they’re stealing our precious bodily fluids.