Wednesday, January 30, 2013

Recovery Not Done - Neg GDP Growth 4Q12

One use of the quarterly GDP growth figures is a check on how hot the economy is.

Watching the GDP figures is like a cook's tasting the soup periodically to see how hot it is.  

The Bureau of Economic Analysis came out with its "Advance" estimate of fourth-quarter 2012 growth and it is slightly negative, minus 0.1 percent. Not too hot.

The figure for 2012 comes to 2.2 percent real GDP growth, in line with the last two years after the horrendous drop in 2008-2009 (see the chart above that I created easily from the helpful BEA Excel spreadsheet on its website - http://www.bea.gov/national/index.htm#gdp).

The negative figure is surely a surprise to most economists. Maybe not Paul Krugman, who has been arguing that the deficit-reduction talk is way premature and we must keep stimulating the economy until the evil effects of the meltdown in 2008 are fully played out.

But the BEA emphasizes in its press release this morning - which I tweeted as @cityeconomist - that the Advance estimate is based on early and incomplete data - the message is that it may well be revised up to a positive figure next month, but meanwhile Dr. Krugman has the opportunity to tell the GOP members of Congress: "I told you so."

On the other hand, world GDP has been slowing down (http://www.economist.com/blogs/graphicdetail/2013/01/focus-world-gdp) and this could be a drag on U.S. growth.