4th Quarter GDP Up, But for How Long?


The Bureau of Economic Analysis (BEA) released its first estimate of 4th quarter GDP this morning.  (Link to the report provided above.)  GDP growth picked up steam in the 4th quarter, rising to 3.2% from the 3rd quarter reading of 2.6% 

What matters more than just raw GDP is the share of the pie for each American.  Since the population is constantly growing (unfortunately), GDP must grow faster in order for real per capita GDP to keep from falling behind.  It did in the 4th quarter, rising by 0.57% to $43,032 per person, its first reading above $43,000 since the 3rd quarter of 2008.  The peak was $44,091 reached in the 4th quarter of 2007. 

If stimulus spending is stripped out of the equation, providing an even better measure of the underlying economy, the results are even better.  See the red line on the following chart:

Real Per Capita GDP

Of course, there’s been no real improvement in the employment situation. 

So, is the economy really doing that much better?  Difficult to say.  The growth in GDP in the 4th quarter was driven in large part by a jump in holiday spending, riding a wave of optimism over extension of the Bush tax cuts.  Perhaps some of that was also fueled by the rising stock market, with that rise fueled in large part by the Fed’s QE2 program of buying treasuries.  That program will continue until June.  The stock market rally has continued into January, but will likely begin pulling back soon in anticipation of what happens when QE2 ends. 

But the biggest driving force behind GDP growth in the 4th quarter was trade.  Exports were up 8.5% while imports (a subtraction from GDP) were down 13.6%.  That’s a big swing.  But, if you’ve been following my reporting on trade, you know that those trade results are suspect, driven largely by gimmicks and swings in oil pricing and import timing.  I’m very skeptical that these trade results are real or sustainable. 

In addition, we’ve already begun to see erosion in economic conditions in January.  The housing market has slipped into a double-dip recession after showing glimmers of life in the fall.  Mortgage applications are falling steadily.  First time jobless claims are spiking up again and durable goods orders are declining.  The economy’s looking shaky again, regardless of the jump in 4th quarter GDP.  This economy isn’t out of the woods yet by a long shot.


One Response to 4th Quarter GDP Up, But for How Long?

  1. Pete Murphy says:

    Just as a matter of follow-up, the BEA released its 2nd estimate of 4th quarter GDP last week, scaling it back to an annual rate of increase of 2.8%, vs. the first estimate of 3.2%. The trade deficit is one the key factors cited in the revision, being worse than previously forecast.

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