GDP: Good, but not great
The nation’s gross domestic product — the value of all goods and services produced — grew at an annual rate of 2.8 percent in the fourth quarter, the fastest pace since the second quarter of 2010. The good news is that it’s up from 1.8 percent in the third quarter, 1.3 percent in the second quarter and 0.4 percent in the first quarter.
The not-so-good news is that analysts were expecting 3 percent growth (some were even calling for 3.5 percent), which is why stocks opened lower after the release.
The real reason why the news is good, not great: Two-point-eight percent growth is very weak for a recovery. Some of the downbeat parts of the report include:
Business spending on capital goods was the slowest since 2009. Companies likely held back on big purchases because of the European debt crisis.
Government spending tumbled 7.3 percent. This was a turnaround from a 2.1 percent increase in Q3 and a nice way to remind those austerity fans that when the government spends less, it creates a drag on economic growth (see: UK).
Rebuilding of inventories accounted for nearly 2 percent of total growth. The restocking of inventories grew at the fastest pace since the third quarter of 2010, but restocking is temporary, which could mean a downturn in the first quarter.
Consumer spending rose 2.0 percent. Sure, it’s up from 1.7 percent in Q3, but it comes at a cost to the personal savings rate, which slipped from 3.9 percent to a 3.7 percent rate in Q4.
I’ll take 2.8 percent growth, especially when compared to contraction or even slower growth, but we really need to see growth above 3 percent for a few quarters in a row to create more jobs and to increase confidence in consumers and businesses.
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