The Bureau of Economic Analysis released its preliminary estimate of 4th quarter GDP this morning. Since third quarter GDP had grown at an annual rate of 3.1%, economists were expecting it to have grown further in the 4th quarter, but at a slower rate – about 1.0%. So the financial community was shocked to learn that 4th quarter GDP actually fell at an annual rate of 0.1%, well below the low end of the range of expectations.
Of course, thanks to population growth, this means that real per capita GDP – your slice of the pie – fell even further, at an annual rate of decline of 0.9%. (The population grew at an annual rate of 0.8% in the 4th quarter.)
When the big jump in 3rd quarter GDP was released in the fall, just prior to the election, I accused the Obama administration of deliberately manipulating the timing of government expenditures to trump up the data and support the president’s claim that the economic recovery was gaining steam and that we needed to stay the course. The breakdown of 4th quarter GDP provided in the BEA news release corroborates that claim:
Real federal government consumption expenditures and gross investment decreased 15.0 percent in the fourth quarter, in contrast to an increase of 9.5 percent in the third. National defense decreased 22.2 percent, in contrast to an increase of 12.9 percent.
Such a huge swing in expenditures – especially the defense spending - is no accident.
But wait, what about exports? One of the cornerstones of Obama’s economic plan was to double our exports in five years (as announced in January of 2010). Didn’t exports help? If you’ve been following this blog, you probably already know the answer:
Real exports of goods and services decreased 5.7 percent in the fourth quarter, in contrast to an increase of 1.9 percent in the third.
Exports are declining – 3.8% in the past 6 months.
The question now is whether the decline in GDP will continue. Two consecutive quarterly declines constitutes a recession. Is this the start of the double-dip that has been held at bay by massive stimulus spending, spending that’s now drying up as a result of the fiscal cliff resolution and upcoming big defense spending cuts? Maybe. Personal consumption expenditures held up pretty well in the 4th quarter as they usually do, fed by the holiday shopping frenzy. But that’s not likely to continue now that tax rates have risen by 2%.
Real per capita GDP, though it has recovered somewhat from the 2008/2009 “Great Recession,” remains almost $1,000 below its pre-recession level, and this may be as good as it gets. In a society that has already breached its economically optimum population density – the point at which per capita consumption is driven into decline by over-crowding – it comes as no surprise that everyone’s slice of the economic pie is diminishing.