GDP: Good news with some caveats.
“The U.S. economy grew at its fastest pace in more than a year and a half in the final three months of 2011, but details of the report raised questions about how strong expansion can be this year.
“The nation’s gross domestic product — the value of all goods and services produced — grew at an annual rate of 2.8% between October and December, the Commerce Department said Friday. That is up from 1.8% growth in the third quarter and 1.3% in the second quarter. It was the fastest pace since the second quarter of 2010. …”
Don’t get me wrong; this is excellent news.
There are a couple of caveats in all of this, however. The U.S. Bureau of Economic Analysis’s GDP report is an “advanced estimate”, meaning the number can be revised upwards or downwards; it turns out to be very hard to actually measure things like GDP. During the Obama Administration the BEA seems to be revising it’s numbers downwards in the course of a few months; not for nefarious reasons as others have suggested, but (I suspect) because the statistical models by which the BEA fills in the gaps to arrive at it’s final number is not properly taking into account factors that are relatively unique to this recession, including delays of purchasing decisions made by business people worried about the risk of new regulatory burdens and Europe’s slow melt down.
The second caveat is that the BEA tracks as part of it’s GDP calculations government expenditures, which means that it is possible for there to be a recession “on the ground” yet have the GDP show in the black because of increased deficit spending. Sure more people are working, and that has a net benefit as a number of businesses on the margins wouldn’t have to unwind, devastating large sectors of the economy. But in a real sense, unless the government spending is done wisely on actual infrastructure projects, and without a lot of bureaucratic waste, the only thing government deficit spending “produces” is debt, debt which represents a drag on the future economy in the form of higher interest payments.
Note: Please for the love of God don’t get me started on how our children will have to repay this debt. They won’t. They’ll just roll it over like we did to our parent’s and our parent’s parent’s debt. Hell, we’re still paying for the Civil War. The key is not the size of the debt, but the size of the debt relative to the overall (non-governmental) GDP–and the size of the debt payments relative to governmental expenditures.
The good news about this particular report is that it shows a 2.8% jump, but at the same time shows a significant drop in governmental spending–which means even if this report gets revised downwards (and my guess is that it will between 0.2% to 0.5%, based on historic patterns, but I could be wrong), it does represent the first honest expansion in non-governmental economic activity.
Update Calculated Risk: Real GDP increased 2.8% annual rate in Q4
They note two things:
(1) Government contraction represents a 0.93% percentage drop on the overall GDP score, meaning if government spending held steady the report would have been for around 3.7% GDP growth.
(2) Investment growth slowed except in residential investments.
I’m not sure what the second point indicates.