Thursday, January 31, 2013

4th Quarter GDP Growth Declines...Government's Fault? Yes, but...

The Washington Post's Ezra Klein writes this morning in his Wonkblog about the decline in the economy in the 4th quarter of 2012:

"...the government is hurting the recovery, and badly. But it’s not because it’s spending too much, or because of concerns over future policy. It’s because government, at all levels, is spending and investing too little. Despite the stimulus and various other policies we’ve passed to help the recovery, and despite the large deficits the government has been running, government spending and investment have, at all levels, been contractionary since 2010."

That's right. Government spending is too little right now, which hurts, well, businesses that do business with the Government. The biggest decline in Federal spending in the 4th Quarter was by the Pentagon, which cut their purchases by a beefy 22.2%. If the Pentagon hadn't cut spending so severely, the economy would've seen a small but steady growth of about 1.27%. 

Some economists feel this is no indication that the economy is in danger of falling back into a recession. "Frankly, this is the best looking contraction in GDP you'll ever see," Paul Ashworth, chief U.S. economist of Capital Economics wrote in a research note. Consumption growth rose by 2.2 percent, up from 1.6 percent in the third quarter, and business investment also climbed by 8.4 percent. "There is nothing in these figures to change our view that US GDP growth will accelerate as this year goes on."

Consumer spending and business investment both showed strong performances, which aligns with the widespread expectation of a more robust economy through most of 2013. 


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