GDP grew at a 2.8 percent annualized rate in the fourth quarter, up from 1.8 percent in the third quarter. That’s a perfectly respectable number for an economy at full employment to put up, but it’s not the kind of “catch-up” growth rate that gives you recovery from a recession. To have meaningful recovery, growth needs to accelerate in 2012 and stay consistently at about 3 percent. That said, Karl Smith emphasized on Twitter this a.m. that the headline quarterly GDP number has a lot of noise, so let’s look at some specific sub-elements:
Autos: Added 3 percentage points to GDP, up from 0.12 percentage points in Q3.
Residential fixed investment: Added 10.9 percent, compared with an increase of 1.3 percent in Q3.
Durable goods: Increased 14.8 percent, compared with an increase of 5.7 percent in Q3.
That right there is the recovery winter story I’ve been selling, where depreciation plus an improved credit environment leads to catch-up production of autos, durable goods, and housings while other elements of personal consumption expenditures (up 2.0 percent, versus 1.7 percent in the Q3) keep plugging along. So what’s the black fly in my chardonnay? Well non-residential structures were a dud (decreased 7.2 percent, in contrast to an increase of 14.4 percent in Q3) and then there’s the government:
Real federal government consumption expenditures and gross investment decreased 7.3 percent in the fourth quarter, in contrast to an increase of 2.1 percent in the third. National defense decreased 12.5 percent, in contrast to an increase of 5.0 percent. Nondefense increased 4.2 percent, in contrast to a decrease of 3.8 percent. Real state and local government consumption expenditures and gross investment decreased 2.6 percent, compared with a decrease of 1.6 percent.
A further potential source of trouble is that despite the overall acceleration of growth what they call “real final sales” actually slowed to an 0.8 percent increase versus a 3.2 percent increase in Q3. In some quarters, businesses end up building-up inventory and we make more than we sell. In other quarters, we sell more than we make and inventories decline. An inventory buildup tends to augur a production slowdown. The numbers we have here are okay numbers to have, but they’re only okay if we speed up. Slowing down from this pace will give us endless stagnation.
It’s also worth noting that at the current juncture in American life, the ups and downs of “the economy” (i.e. how much stuff we make) can have an unusually attenuated relationship with the issue of how much cash is in people’s pockets because we have so many different temporary tax cuts, UI changes, etc. happening. Real disposable personal increased just 0.8 percent, which is very low.
