Q4 GDP: 2.8%

posted at 9:15 am on January 27, 2012 by Ed Morrissey

The good news — the annualized GDP growth rate in the fourth quarter went up a full point from Q3′s final number to 2.8%.  The bad news: the first estimate for Q4 is only three-tenths of a point better than the first estimate for Q3:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.8 percent in the fourth quarter of 2011 (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis.  In the third quarter, real GDP increased 1.8 percent.

The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4).  The “second” estimate for the fourth quarter, based on more complete data, will be released on February 29, 2012.

The increase in real GDP in the fourth quarter reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, residential fixed investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending.  Imports, which are a subtraction in the calculation of GDP, increased.

Even assuming this number holds up in further revisions, it’s still basically a holding-pattern number.  We need to see much more growth than this to expand job creation in any significant manner.  That figure should be in the 4s this far out from a recovery, not the 2s or the 1s, and until we see that kind of growth, we won’t see job growth significantly exceeding population growth or an expansion of the work force from its 30-year low in participation rates.

Underneath the mildly positive report are a couple of warning signs.  PCE growth was only 2.0%, below the growth level of the overall economy, which means consumer demand isn’t catching fire.  Services only grew 0.2%, a bad indicator for demand.  Most worrisome is that the real final sales of domestic product, which measures actual sales without inventory growth, only rose 0.8%, after a 3.2% growth in Q3.  That’s a very weak number and may indicate an inventory glut heading into 2012.

Even Reuters doesn’t sound terribly optimistic about this report’s indications for 2012:

The U.S. economy grew at its fastest pace in 1-1/2 years in the fourth quarter, but a strong rebuilding of stocks by businesses and weak spending on capital goods hinted at slower growth in early 2012.

U.S. gross domestic product expanded at a 2.8 percent annual rate, the Commerce Department said on Friday, a sharp acceleration from the 1.8 percent clip of the prior three months and the quickest pace since the second quarter of 2010.

It was, however, a touch below economists’ expectations for a 3.0 percent rate.

They also point out that most of the growth was in inventory expansion:

Inventories increased $56.0 billion, adding 1.94 percentage points to GDP growth. Excluding inventories, the economy grew at a tepid 0.8 percent rate, a sharp step-down from the prior period’s 3.2 percent pace.

The robust stock accumulation suggest the recovery will lose a step in early 2012.

I’d expect this number to fall to 2.2% or 2.3% by the time of the final revision in March.


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