Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The economy is really growing at about a 1.5% rate
The negative growth of GDP of -0.1% during the fourth quarter was no more real than was the 3.1% growth in GDP during the third quarter. The real growth rate of the American economy is closer to the half way point between them -- 1.5%.
According to preliminary statistics released by the BEA yesterday, real GDP fell at a 0.1% annual rate during the fourth quarter of 2012 after rising by 3.1% annual rate during the third quarter. What caused the dramatic change?
The following table shows the contributors to GDP Growth over the last four quarters:
As shown in the table, Household consumption and business investment rose from the third to the fourth quarter. The factors that fell from the third to fourth quarters were government consumption, net exports and inventories.
Government consumption showed the most dramatic drop. In the third quarter it contributed 0.7% to GDP while in the fourth quarter it subtracted 1.2% from GDP. Thus a government purchases slowdown accounted for 1.9% of the 3.2% drop in GDP from the third to the fourth quarter.
The other big factor was inventories. During the third quarter businesses built up their inventories by 0.6% of GDP. In the fourth quarter they cut their inventories by 1.2% of GDP. Thus reduced inventories accounted for 1.8% of the 3.2% drop in GDP from the third to the fourth quarter.
The factors that caused GDP to fall during the fourth quarter were simply a reversal of temporary factors that caused GDP to rise excessively during the third quarter. They will not continue into the first quarter of 2013. The U.S. economy is not falling into a recession. It is simply stagnating with 1.5% growth.
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