Initial Fourth Quarter GDP Report Sends Mixed Signals
Some good news, but also plenty of reason to worry about the future.
The initial report for Gross Domestic Product Growth for the Fourth Quarter of 2013 was released today and, to put it mildly, the results are mixed and the signals are cloudy. On the good side, the report shows the economy growing at an annualized 3.2% rate in the final quarter in the year, and while that is below the number we saw for the Third Quarter, it’s still a fairly decent number that may hopefully indicate that we’ll see better numbers heading into 2014. On the other hand, some of the details of that report show potentially worrisome signs for the future, and annual GDP growth for all of 2013 stands at 1.9%, which is below the 2.8% we saw for 2008. Given that every year of the economic recovery to date has shown an odd pattern whereby the numbers for the first and second quarters have typically been far weaker than the rest of the year, that doesn’t necessarily bode well for the economy as we head into what should be the fifth year of economic recovery since what has come to be called the Great Recession.
Here’s an excerpt from the Commerce Department report:
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 3.2 percent in the fourth quarter of 2013 (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 4.1 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 and “Comparisons of Revisions to GDP” on page 5). The “second” estimate for the fourth quarter, based on more complete data, will be released on February 28, 2014.
The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and state and local government spending that were partly offset by negative contributions from federal government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the fourth quarter reflected a deceleration in private inventory investment, a larger decrease in federal government spending, a downturn in residential fixed investment, and decelerations in state and local government spending and in nonresidential fixed investment that were partly offset by accelerations in exports and in PCE and a deceleration in imports.
Real GDP increased 1.9 percent in 2013 (that is, from the 2012 annual level to the 2013 annual level), compared with an increase of 2.8 percent in 2012.
(…)
Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — increased 1.8 percent in the fourth quarter, compared with an increase of 3.9 percent in the third.
The New York Times puts something of a positive spin on the numbers:
While the headline number was encouraging, the details of Thursday’s report neatly illustrate the crosscurrents that have been buffeting the economy, and have prevented it from achieving more sustained gains.
For example, although consumer spending grew by 3.3 percent in October, November and December, up from a 2 percent increase in the third quarter, government expenditures plunged 12.6 percent because of the shutdown and automatic budget cuts imposed by Congress at the start of 2013.
Over all, the government pullback lowered fourth-quarter growth by 0.9 percentage points, with the shutdown itself shaving off 0.3 percentage points. In addition, the residential housing sector was also a source of weakness, cutting overall growth by 0.3 percentage points.
Some of that drop was weather-related, as construction activity halted, but it also represents a slowing of housing gains as mortgage interest rates rose and the sector’s postrecessi,n rebound cooled. The fourth quarter of 2013 was the first time that housing was a drag on overall growth since 2010.
As was the case in the third quarter, inventory additions by businesses lifted growth, adding 0.4 percentage points. Those stockpiles will most likely be drawn down in the first quarter of 2014, slowing the expansion a bit in the current quarter, economists said.
The trade picture continued to improve, as exports rose strongly while imports inched up only a bit.
“It’s a pretty solid report with a big burst in consumption at the end of the year, a big narrowing in the trade deficit and some weakness in housing,” said Julia Coronado, chief economist for North America at BNP Paribas.
Reuters was much more circumspect in its take, especially when viewed in light of the news that new unemployment claims had risen last week:
The number of Americans filing new claims for unemployment benefits rose more than expected last week, but the underlying trend suggested the labor market continued to heal.
Initial claims for state unemployment benefits increased 19,000 to a seasonally adjusted 348,000, the Labor Department said on Thursday. Claims for the prior week were revised to show 3,000 more applications received than previously reported.
(…)
Gross domestic product grew at a 3.2 percent annual rate, the Commerce Department said, in line with expectations. While that was a slowdown from the third-quarter’s brisk 4.1 percent pace, it was a far stronger performance than earlieranticipated and was welcome news in light of a 0.3 percentage point drag from October’s partial government shutdown and a much smaller contribution to growth from a restocking by businesses.
Earlier in the quarter many economists were anticipating a growth pace below 2 percent given that an inventory surge accounted for much of the increase in the July-September period. Growth over the second half of the year come in at a 3.7percent pace, up sharply from 1.8 percent in the first six months of the year. It was the biggest half-year increase since the second half of 2003.
Digging down into the details of this initial report, there are some elements of concern as we head into 2014. First of all, there’s the news that gross domestic purchases increased by a mere 1.8% in the 4th Quarter as opposed to a Third Quarter increase of 3.9% and that personal consumption expenditures rose 2.4% year over year for the 4th Quarter, which seems indicative of either a weak holiday season or one in which inventory only moved after it was deeply discounted. Secondly, there are the same indications in these numbers that we’ve seen in previous years that we’ll see a repeat of the pattern I noted above where the first half of the year shows relatively weak and anemic growth, followed by a slight improvement in the second half in the year that leaves us with an anemic overall growth rate for the year as a whole. Indeed, for all of the four full years of the post Great Recession we haven’t had a year of annual GDP growth above 3% since before the Great Recession. This compares quite unfavorably to previous economic recoveries where economic growth at annualized rates between 4% and 5% were quite common, and is quite likely the primary reasons that the most lingering impact of the Great Recession, long-term unemployment, continues to haunt the economy.
All in all, this initial report is good news, but there are enough cautionary signals here to worry about what 2014 might actually bring us, especially given the fact that the Fed has begun to taper on its Quantitative Easing program and growing indications of weakness in emerging overseas markets, including China. So, keep those champagne bottles corked for now people.
Wait, I was certain we were told by those on the right that cutting the deficit would lead to happiness and joy. Well, we cut the deficit. Where’s the joy?
I think that Janet Yellin will reverse tapering at the first sign of weakness and probably do what Bernanke never did and call openly for fiscal stimulus. The Republicans will do the best to keep tanking the economy, but the economy seems to be taking off finally. They might try some Debt ceiling foolishness, but that’s unlikely.
As Michael alluded to above, this is good news indeed for Republicans.
So basically without the Republican House Q4 would have been 4.1%. Just wonderful.
Umm. Doug? There are always plenty of reasons to worry about the future.
Always.
Here in the present, the deficit is falling like a stone. Unemployment is easing despite huge losses in government jobs. We are on the road to energy independence, for God’s sake. Corporate profits are solid. Health care costs, a seemingly unyielding problem not so long ago, are coming under control. The real estate market recovered, and now seems to be correcting itself instead of overheating – same for the stock market.
If Republicans care about this country, why are they not doing double backflips of joy?
@anjin-san:
“Care” goes to the big donors to the conservative industry, of which the GOP is an integral component.
That said, their actions are rewarded, quite handsomely, by a significant portion of the electorate. Perhaps there will come a time for the rank-and-file when economic issues will trump social issues, but it won’t happen in the near future.
@gVOR08: Sshhh. You’re ruining the narrative.
@michael reynolds:
http://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf
Funny how something from 1933 sounds like it could have been written yesterday. But conservatives are intent on repeating the same errors.
@michael reynolds:
Jesus-god Michael … We need to cut more….don’t you get it ???
The problem here is that the short run is over. I know that many people would like to treat this as still a short term depression in aggregate demand, something that can simply be stimulated away, but that actually runs counter to many of the other facts we know.
We agree that companies have automated, outsourced, removed noncritical workers.
Thus, we know that they can meet demand, even higher demand, without mass hiring.
Look at the best selling products of 2013, look at your favorite purchases, were any of them intensive in US workers?
If not, then even allowing you to purchase more and more of them would not have the US labor force, middle wage, impact that you hope it will.
(The story of the Planet Money T-Shirt is good on this.)
@john personna:
Well, there’s always the guaranteed basic income idea…
But that’s far too radical at this point. Things aren’t nearly bad enough to make that politically possible.
So, what then? I’m at the point where anything that will tighten the labor market at the bottom end interests me: changes trade policy, immigration policy, or the minimum wage. In theory, free trade should enrich us. And it has, sort of. It’s enriched a small % of us, and harmed a larger %. We could address that via taxation & redistribution, but I despair of much being done on that front. Maybe the other route is more doable?
@Rob in CT:
We may indeed be on a long and winding road to a minimum guaranteed income.
I also agree that free trade has its downside. Indeed, I’ve come to think that free trade arguments were often too simplistic. Economists made their typical “all else being equal” argument, but there is a real elephant in the room. As long as we need to tax local workers, foreign and lower tax workers will be at an advantage. FICA alone costs more per hour than Apple pays in China. Add onto that the environmental protections we enjoy.
So basically free trade was mathematically equal to subsidized trade. It is manufacturing etc. with a wage and environmental subsidy.
We should be seeking that low, uniform, tariff which balances burdens, which is neither protectionist, nor subsidizes offshore production.
@john personna:
A hard balance to strike, that. What’s low? Where is the right balance?
@Rob in CT:
We could try to have some economist compute the effective tax burden on a TV made in America, and then try to match that. And then for a barrel of oil raised in Texas, etc.
Or we could just go with the aggregate tax burden on (embedded in) wholesale goods.
I’d prefer the simplicity of the latter.
@john personna: @Rob in CT:
To be fair, the eco/fair wage tariff would have to be calculate per country so it would be higher on Chinese goods than goods from EU nations that already have wage and eco protections. Of course that wouldn’t fly with our current (or likely) treaties.
@john personna:
Let me see if I’m following.
We compute the tax burden on a TV made in the USA. We compare to the tax burden to a TV made in China. If the latter is lower, we slap a tarrif on it to equalize? What if it’s actually higher? We accept a tarrif on US TVs going to China?
Hmm. I’m not even sure “tax burden” is the right thing to measure and try to equalize. What about worker protections and environmental protection? Those impose costs, but they’re not taxes per se. [edit: bah, sorry. You mentioned environmental protections in your prior post. I take it you’re using “tax” loosely here?]
@Grewgills, @Rob in CT:
You guys have got it. I wouldn’t try to get too fancy (like it’s my choice!), and would probably just do something that does approximate our wholesale tax burden. So that is slightly unfair to Swedes. They’re doing OK.
Note that what we buy from Swedes and Germans tend to be high priced technical or luxury goods, the higher tax burden working against them already.
A minimum income would be inherently inflationary by increasing spending at the same time it incentivizes workers to leave the force. It also fails to account for the fact the poor and middle classes do not want a welfare check, they want to work. It’s unfortunate so many listen to the professionally underinformed like Yglesias, who is not familiar with the academic work regarding income guarantees, all of which point to rising consumption coupled with falling production should the scheme be implemented. Furthermore the income guarantee is not counter-cyclical, and does not expand and contract in response to the business cycle. It therefore does little to nothing to improve macroeconomic stability.
So we have a proposal for a basic income guarantee which lowers production, increases consumption and fails in every way to deal with the negative externalities produced by unemployment. Why? Because the BIG is an idle academic concept not intended to address employment or price stability, but to “decommodify” labor in transition to a post-capitalist economy.