A Distressful U.S. GDP Report

January 27, 2012

Real GDP advanced 2.8% last quarter annualized (saar) but only 0.8% factoring out the boost from inventory accumulation.  GDP was 1.6% higher than in 4Q10 and posted five-year expansion of merely 0.5% per annum between 2006 and 2011.  Nominal GDP rose just 3.2% saar last quarter, down from 4.4% in the third quarter.  The GDP price deflator rose just 0.4% saar in 4Q11, its smallest quarter-on-quarter increase since 3Q09 when the recovery was just beginning.  The core personal consumption deflator went up 1.1% saar in the latest quarter, roughly half of the Fed’s target.  The core PCE deflator’s average rise in 2011 was 1.4%, same as in 2010, and it climbed 1.7% between 4Q10 and 4Q11.

One of the more interesting developments among components of real demand concerned government expenditures.  President Obama has been getting hammered by his opponents for loosey goosey fiscal spending and the accompanying high federal deficit.  The deficit mainly reflects deficient economic growth and low revenues.  Somebody in this year’s election campaign ought to point out that government expenditures have now declined for five consecutive quarters.  Such fell by 4.6% saar in 4Q11 and exerted a 0.93 percentage point (saar) drag on real GDP growth that quarter and 0.45 percentage points for 2011 as a whole.  Elsewhere, consumer spending, which accounts for about 70% of GDP, posted similarly unimpressive gains of 2.0% saar in 4Q11, 2.2% in calendar 2011, and 2.0% in calendar 2010.  Non-residential investment went up 1.7% saar in the quarter, a marked drop in forward momentum after gains of 10.3% in 2Q and 15.7% in 3Q.  Annualized export and import growth remained below 5% for a third straight quarter. Taken together, net foreign demand exerted a 0.11 percentage point drag on growth last quarter, but weakening global demand points to a bigger negative from this source in the future.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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