U.S. and Canadian Fourth-Quarter 2013 GDP Growth

February 28, 2014

U.S. real GDP grew 11% in the 4.5-year-long recovery but just 6.2% since the last business cycle peak in 4Q07.  That works out to a 1.0% per year rate of expansion over the last six years.  Although measuring the discrepancy between actual GDP and potential GDP is fraught with error, it’s quite clear that the United States is not operating at full employment.  Strong corroborating evidence for this conclusion comes from the core personal consumption price deflator, which advanced 1.3% annualized between the third and fourth quarters and by 1.2% between the final quarters of 2012 and 2013.  The core PCE deflation had risen at a 1.8% annual rate in the previous two years.

Fourth-quarter growth was revised down by nearly a percentage point to 2.4% from 3.2% reported a month ago.  Personal consumption accounted for about three-quarters of that increment.  Non-residential investment and net foreign demand augmented GDP growth by 2.1 percentage points, but government spending exerted a 1.1 percentage point drag. Government spending fell by 2.5% between end-2012 and end-2013.  That was the fourth 4Q-over-4Q decline in a row, and the cumulative drop in that component of aggregate demand was 7.8% over those four years. 

Canadian GDP lost considerable momentum at the end of the fourth quarter.  Following increases of 0.4% in October and 0.2% in November, GDP dropped 0.5% in December, with industrial production and energy posting respective monthly declines of 0.9% and 1.4%.

In Canada’s quarterly GDP series, however, real GDP growth of 2.9% in 4Q outpaced U.S. growth by half a percentage point.  The change in inventories, which had only a small impact on U.S. growth last quarter, accounted for half of Canadian GDP in the period.  Government investment plunged 10.4% annualized and exerted a half-percentage point drag on the GDP growth rate.  Both residential investment and non-residential investment fell in the quarter, but net exports boosted the growth rate by 0.2 percentage points, which is a change for the better after years of being a major economic headwind.  Canadian personal consumption grew 3.1% annualized in the quarter, beating the 2.5% advance in its U.S. counterpart.  Canada’s GDP price deflator was 1.0% higher in the final quarter of 2013 than a year earlier. 

Average Canadian GDP growth was 2.0% in 2013, not much better than the 1.7% pace in 2012 and well off the 2.9% annualized pace over the two years between 2009 and 2011.  Like the United States but not Europe, Canadian GDP has more than recovered ground lost during the Great Recession.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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