Five reasons bad GDP news is misleading Commentary: Private demand grew at a 3.3% rate in the quarter
Here are five reasons the GDP report wasn’t a disaster.
1. Consumer spending. Spending rose at a 2.2% annual rate, led by the largest increase in purchases of durable goods in two years. Consumers don’t buy durables unless they feel a bit confident that their incomes will keep coming in.
2. Business investment. Capital spending rose at an 8.4% rate, reversing a 1.8% decline in the third quarter. Spending on equipment and software increased at a 12.5% pace, the best in more than a year. Businesses don’t invest unless they think customers will keep coming in.
3. Home building. Housing is crawling back. In the fourth quarter, home construction grew at a 15.3% annual pace. Home building added 1.5 percentage points to growth in the quarter.
4. Inventories. Businesses slowed their inventory growth by $40 billion, in part because sales were higher than they expected. Inventory levels are low, so many businesses will now need to buy or produce more goods to fill the demand.
5. Government spending. If the poor GDP report shows one thing, it’s that cutting government spending actually hurts economic growth, at least in the short run. Government spending fell at a 6.6% annual rate, mostly because of the timing of defense purchases. The money the government didn’t spend in turn wasn’t earned by the workers, contractors and suppliers. The contraction in government spending reduced GDP growth by 1.3 percentage points.
In fact, the fourth-quarter GDP wasn’t terrible at all. Private demand was strong: Final sales in the U.S. private sector rose at a 3.3% annual rate in the fourth quarter, the fastest growth in nearly a year.
more:
http://www.marketwatch.com/story/five-reasons-the-gdp-report-is-misleading-2013-01-30?siteid=nwtam
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