Disappointing 4th Quarter Still the Best Growth in 4 Years

posted at 1:05 pm on January 28, 2011 by John Sexton

Reuters offers this “snap-analysis” of the fourth quarter GDP numbers released this morning:

At first glance, the 3.2 percent growth rate for gross domestic product looks light, considering economists polled by Reuters expected a 3.5 percent pace.

However, the figures show consumer spending growing at the fastest rate in four years and international trade providing a surprisingly large lift. Both show an economy that is pulling more of its own weight, an important development as government stimulus spending fades.

Essentially, we had a strong Christmas season. Shoppers were spending, though there seems to be agreement that 3.2% growth is too anemic to cause any downward movement of the unemployment needle.

The other news is a surge in exports which Reuters describes as the biggest contribution to GDP growth since 1980:

The figures suggest a weakening U.S. dollar is helping to boost exports, a priority for President Barack Obama and part of the formula for rebalancing global growth.

So we may be seeing some benefits (yes, I said benefits) of the quantitative easing program. Just Wednesday, the Fed decided to continue with their established QE plan and that move has drawn renewed criticism from the Chinese firm responsible for managing their foreign exchange reserves. They not so subtly compared the dollar to “Zimbabwe notes” this week (a currency that underwent hyper-inflation in 2009).

Inflation is the big risk inherent in quantitative easing and some members of the Fed’s rotating board expressed concerns about it on Wednesday. But Bernanke and a majority of the board continue to press forward. No doubt we’re playing a dangerous game here, but for the moment this move seems to be irritating all the right people and making a noticeable dent in our balance of trade.


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Worse than expected.

Unexpectedly?

Pattosensei on January 28, 2011 at 1:09 PM

All the smart people expected something different than what happened. As usual.

Akzed on January 28, 2011 at 1:09 PM

Ignore that massive, ruinous debt hanging over it all.

Bishop on January 28, 2011 at 1:11 PM

Well, remember…this number will be “unexpectedly” revised down.

sandee on January 28, 2011 at 1:14 PM

If we “aborted” everyone in debt, then we could pull out of this slump.
Is a slow death worse then a quick and painless death?
The same end…this is torture by an administration that does not know what to do.
And it is so simple, so basic, and so against their “progressive” ideals.
They are so against “waterboarding”, but then they are waterboarding us with bills and laws…

right2bright on January 28, 2011 at 1:16 PM

So the economy goes down, down, down, and so-called economists and such keep saying things will get better, and that this is just a minor downturn. Then, after the economy goes south for months and months, once there is a little uptick the same people scream THE RECESSION IS OVER!!!!eleventy!

The truth is, these financial and economic “experts” didn’t predict the housing bubble and crash, the NASDAQ bubble, the oil bubble and crash, and the current DOW bubble. In fact, these linear-driven thinkers are incapable of understanding the market. Moreover, they get paid to go on TV and say that things are getting better. They wouldn’t be hired to go on TV and say things are getting worse. So not only are they fraudsters, but liars as well.

Weebork on January 28, 2011 at 1:18 PM

More investment in education and high speed rail will solve this…

PatriotRider on January 28, 2011 at 1:20 PM

And it will be revised downward.

/pessimism

NeighborhoodCatLady on January 28, 2011 at 1:22 PM

Agree they always revise this number….take with a grain of salt

cmsinaz on January 28, 2011 at 1:26 PM

Do the math.

$14 trillion * 3.2% = 448 billion.

If your deficit is 1.5 trillion; there isn’t really any growth at all. It’s a myth. It’s like spending $100 to make $25. You lose $75 in the transaction.

lorien1973 on January 28, 2011 at 1:27 PM

Yep, QE is going to work great, until people realize the dollar isn’t worth what it used to be – and prices soar.

GarandFan on January 28, 2011 at 1:38 PM

The other news is a surge in exports which Reuters describes as the biggest contribution to GDP growth since 1980:

The figures suggest a weakening U.S. dollar is helping to boost exports, a priority for President Barack Obama and part of the formula for rebalancing global growth.

This is very interesting. Every exporting country wants a weak currency. It’s funny that the Administration blasts China for their purposely keeping their currency weak to keep their exporting strong, while Bernanke is trying to do the same thing with QE by creating inflation, i.e. lowering the value of the currency, to help, under the assumption of Keynesian economics, that it will help with debt and improve the economy.

We just need to look at Japan for what happens when a government attempts to monetize debt. They’ve been doing their own QE for over a decade and all they have to show for it is 200% debt to GDP, continuing deflation, and now a reduction in bond rating by S&P. What Japan, and now Bernanke, et al. are trying to do is violate the Laws of Thermodynamics by A) attempting to create something out of nothing and B) use that new “creation” of money with no consequences. Both are violations of the First and Second Laws of Thermodynamics, respectively. Their attempt to create their own physics is going to only cause further financial misery and pain for the country.

Weebork on January 28, 2011 at 1:39 PM

The big problem with the hyperinflation argument is that it is impossible to have hyperinflation while credit is deflating. The amount of US money in the world is something around $3 or $4 trillion, the amount of credit in the world is in the tens of trillions of dollars. Since credit is orders of magnitude larger, its behavior will drown out any effects the dollar’s value may produce. Thus, as long as credit continue to contract, along with declining housing values, we will continue to be in a deflationary period. After that, however, the hyperinflation argument may then come in to play.

Weebork on January 28, 2011 at 1:45 PM

The big problem with the hyperinflation argument is that it is impossible to have hyperinflation while credit is deflating.

Hyperinflation is not a technical issue it is a confidence issue. When enough folks believe that holding dollars is foolish, as many have already decided, then the value plummets and hence prices start going out of control.

Btw inflation right this very second is getting out of control but that is a separate issue.

PierreLegrand on January 28, 2011 at 1:59 PM

To give you and example we are building a home. We bought much of supplies far ahead of time since the dollars value was going down. When enough people start doing that very thing then far too many dollars chase goods.

PierreLegrand on January 28, 2011 at 2:01 PM

What is the difference between “quantitative easing” and counterfeiting?

CWforFreedom on January 28, 2011 at 2:14 PM

Citizens commit counterfeiting crimes…
Big Bankers do not commit counterfeiting…both do the same thing.

Sort of a take off of Stalins famous quote. If you kill one person it is a tragedy…if you kill a million it is a statistic.

If yo counterfeit a 1,000 bucks you are a criminal. If you counterfeit a trillion dollars you are Obama.

PierreLegrand on January 28, 2011 at 2:20 PM

It’s amazing when we as a nation are flat broke and unemployment figures are using the numbers of people that are drawing unemployment checks instead of all the people out of work. No wonder that 9.6 figure never changes. The administration is under the control of the White House and do you really think that they will give some accurate information to the public? I now of a bridge you can buy, cheap. Government can only offer government jobs and this confuses them that they cannot mandate jobs.

mixplix on January 28, 2011 at 6:06 PM

I know of a bridge…………sorry

mixplix on January 28, 2011 at 6:08 PM

Nearly Nobody on January 28, 2011 at 2:26 PM

a black guest!?!??!?! my goodness! Also, how can you not recognize Tracy Morgan??

ernesto on January 28, 2011 at 9:21 PM