You Down With The GDP (Yeah, You Know Me)

Chart via Steve Benen

Bureau of Economic Analysis:

Real gross domestic product — the output of goods and services produced by labor and property
located in the United States — increased at an annual rate of 5.7 percent in the fourth quarter of 2009,
(that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the
Bureau of Economic Analysis. In the third quarter, real GDP increased 2.2 percent.

The Bureau emphasized that the fourth-quarter advance estimate released today is based on
source data that are incomplete or subject to further revision by the source agency (see the box on page
4). The “second” estimate for the fourth quarter, based on more complete data, will be released on
February 26, 2010.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from
private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which
are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private
inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that
were partly offset by decelerations in federal government spending and in PCE.

Motor vehicle output added 0.61 percentage point to the fourth-quarter change in real GDP after
adding 1.45 percentage points to the third-quarter change. Final sales of computers subtracted 0.03
percentage point from the fourth-quarter change in real GDP after subtracting 0.08 percentage point
from the third-quarter change.

Calculated Risk:

This is very close to my expectations and shows a fairly weak economy (real PCE increase 2.0%). The question is: what happens in 2010?

I’ll have some more on GDP and investment later …

Ed Morrissey:

These are all preliminary numbers, of course.  Commerce first estimated 2009Q3 GDP at a 3.5% annualized rate of growth.  Later it had to revise that number downward twice, to the same 2.2% that remains in Q4 after eliminating inventory manipulation. In a month to six weeks, look for that number to slide downward again, although not as much as in Q3, which was an unusually high correction.  It also looks like the inventory accounting will be a one-time deal, which won’t help the numbers in the next quarter.

Politically, this could not come at a better time for Obama.  He wants to move forward on jobs in the same direction as Porkulus, and these numbers will lend credence to his argument that his policies are the correct cure for the economy.  But a 2.2% rate of real growth won’t be enough to get capital back in the game, especially under the business conditions set by the high-spending, high-regulating, high-taxing agenda in Congress.

Next month’s unemployment report will have more impact on the economic policy debate, I’d guess, than the GDP number.

Andrew Sullivan with a round-up of responses

Paul Mirengoff at Powerline:

The increase is said to be in part a function of a steep drop in the pace at which businesses were cutting back on their inventories. Although that’s a positive development, it means that inventories will not add much to growth in the coming quarters unless businesses believe they cut back too far during the downturn and decide to actively rebuild their inventories.

On the other hand, increased consumer spending also played a big role in the economy’s growth. It rose at a 2 percent annual rate, which was enough to add 1.4 percentage points to total GDP

If the economy is headed for a healthy recovery, Republicans should perhaps be a little less triumphalist about President Obama’s current difficulties. To non-ideological voters (i.e. most of the electorate) nearly everything political looks different when we go from bad times to good, or vice versa. Think of the difference in how things seem during a long, bumpy airline flight and during a luxury cruise.

Think also about the State of the Union Obama would be capable of giving if the unemployment rate fell to close to half of what it is now. I submit that the demagoguery that was so easy to shrug off on Wednesday would be considerably more threatening in that context.

The Republicans should have a good November 2010 notwithstanding the recovery. First, the employment situation probably has a long way to go before it stops being a liability for Democrats. And, at least as importantly, voters may well be intent on restoring more balance between the parties quite apart from economic considerations.

It’s what might happen in 2011 and 2012 in light of a recovery that Republicans should start thinking about.

Steve Benen:

After struggling for so long, a 5.7% rate looks like an economy that’s finally roaring back to life. The AP added that the growth is “the strongest evidence to date that the worst recession since the 1930s ended last year.”

That’s the good news. The bad news is that the 5.7% number, while obviously heartening, may be a little misleading. Expect to hear a lot about something called an “inventory bounce.”

Many economists … warn against reading too much into a jump in GDP figures for the last three months of 2009. Ed Yardeni, president of Yardeni Research, said that even if there were no change in final sales of goods, the GDP figures would show a 4 percent increase simply because businesses that were emptying their warehouses a year ago are now buying enough goods to keep stockpiles steady.

Still, the 5.7% quarter exceeded several estimates. And with that, here’s another home-made chart, showing GDP numbers by quarter since the recession began in late 2007.

Megan McArdle:

But man cannot live by GDP alone.  I’d argue that the better measure of whether the economy has returned to health is employement–at least, that’s when the improvement starts to translate into improvements in peoples’ real lives.  Prolonged unemployment is one of the most crippling things that can afflict people in the modern world.

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Filed under Economics, The Crisis

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