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Thursday, January 30, 2014

The Q4 GDP Report

Comments on today's GDP report for the 4th quarter of last year are generally upbeat:

Q4 GDP: Solid Report, Positives Looking Forward, by Bill McBride: The advance Q4 GDP report, with 3.2% annualized growth, was slightly above expectations. Personal consumption expenditures (PCE) increased at a 3.3% annualized rate - a solid pace. ...

Overall this was a solid report, and there are several positives going forward...

But:

...the Federal Government subtracted 0.98 percentage points from growth in Q4, and residential investment subtracted 0.32 percentage points. Imagine no Federal austerity - Q4 GDP would have been above 4%. Luckily it appears austerity at the Federal level will diminish in 2014, and of course I expect that residential investment will make a solid contribution this year. ...

The drag from state and local governments appears to have ended after an unprecedented period of state and local austerity (not seen since the Depression). State and local governments have added to GDP for three consecutive quarters now.

I expect state and local governments to continue to make small positive contributions to GDP going forward. ...

Josh Bivens at EPI says there are things in the report to be "glum about":

Scratching Just One Level Below Surface, Growth Numbers Look a lot Less Impressive: The last six months of 2013 saw the headline GDP growth rate reach 3.7 percent. That’s a healthy number. Not gangbusters (we really have seen growth rates over 5 percent for a year or more in previous recoveries where there was slack in the economy comparable to what persists today), but undeniably healthy.
So what’s to be glum about?
Strip out the contribution of inventory investments and exports, and add in (rather than subtract) the value of imports. This is a measure of real “final sales to domestic purchasers,” or, what is sometimes called domestic demand. It’s a measure of how much demand from households, businesses, and governments is growing—and since the economy’s problem remains a huge shortfall of this demand relative to productive potential, it’s a key barometer of health.
Domestic demand growth for the last six months of 2013 was only half as fast as headline GDP growth (1.8 percent). ...
Are there any reasons to be less glum about 2014? For sure.
The big one is that federal fiscal policy will no longer be actively throttling growth. It knocked nearly a full percentage point off the fourth quarter growth rate. To be clear, fiscal policy won’t aid growth in 2014, instead it will provide a very slight drag rather than an anvil-heavy drag. This is what counts as progress in today’s fiscal policymaking. But, we’ll take what we can, I guess.

    Posted by on Thursday, January 30, 2014 at 09:54 AM in Economics | Permalink  Comments (23)

          


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