GDP drops 0.1 percent but other economic indicators continue to rise

Accordint to the latest Commerce Department report, GDP shrank 0.1 percent last quarter, but other economic indicators, like consumer spending, business investment, and employment, continue to rise.

A report released by the Commerce Department Wednesday shows the economy shrank 0.1  percent last quarter. That negative headline number wasn't unexpected. But when you look at details of the report, coupled with new job numbers out this morning, the picture isn't quite so bad.

"We had some negatives," says Gus Faucher, senior economist at PNC Financial Services Group. "There was a big drop in inventories, that supported growth in the third quarter and took away from growth in the fourth quarter. There was a huge drop in defense spending, and then exports were weak in the fourth quarter as well. On the plus side, we had more than a 2 percent increase in consumer spending and then business investment turned around after dropping a little bit in the third quarter."

But Julia Coronado, chief economist at BNP Paribas, warns that "Those spots aren't perhaps quite as bright as they seem in this report either. The pop in income we saw, some of that was related to a payout of dividends and bonuses ahead of higher tax rates in 2013. It looks a little stronger than it really is."

Coronado says post-Hurricane Sandy atuo sales also drove some of the consumer-spending growth we are seeing, but "I think the story for consumers is a story of stability," she says, "and that is a good bedrock for the U.S. economy."

Faucher says the increase in business investment, which can be very volatile, is a good sign too.

"It fell a little bit in the third quarter," he explains, "but the fact that it rose in the fourth quarter, even when we had all that concern about the fiscal cliff and what was going to happen to tax rates and possible spending cuts, is an indication that businessses are continuing to spend."

Employment numbers show that businesses are also continuing to hire. 

"Overall, we're expecting job growth of 175,000 when we get the number from the Bureau of Labor Statistics on Friday, and that should be enough to bring the unemployement rate down slightly. So businesses continue to hire; it looks like the job market continues to gradually improve," says Faucher.

 

About the author

Mark Garrison is a reporter and substitute host for Marketplace, based in New York.

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