GDP falls 'unexpectedly'; time for a growth agenda | Business Roundtable


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GDP falls 'unexpectedly'; time for a growth agenda

Jan 30, 2013

 Glenn Reynolds, the Instapundit, makes a recurring joke about optimistic economic forecasts turning out to be "unexpectedly" wrong. Today's 4th Quarter GDP results -- a 0.1 percent contraction, and the first quarterly drop since 2009 -- are yet another case, as the headlines below indicate.

Until Washington makes economic growth a policy priority, the country will experience much more of this unexpectedness, which translates into unhappinesss for individuals and the nation.

Business Roundtable rolls out its economic growth agenda on Thursday. Yes, many of its recommendations will be the expected ones, but it's time Washington actually try them out.

Guardian (U.K.), "US economy shrinks unexpectedly despite improving job market":

The US economic recovery juddered to a halt in the final months of 2012 as government slashed defense spending, businesses cut back, and Washington fought over the fiscal cliff budget crisis.

The nation's gross domestic product (GDP) shrank for the first time in three and a half years during the fourth quarter, dropping at an annual rate of 0.1%, the Commerce Department said Wednesday. It was the US's worst economic performance since October 2009, and came as economists had been expecting mild growth of around 1%.

New York Times, "U.S. Economy Unexpectedly Contracted in Fourth Quarter":

The drop was driven by a plunge in military spending, as well as fewer exports and a steep slowdown in the buildup of inventories by businesses. Anxieties about the fiscal impasse in Washington also contributed to the slowdown.

While economists expected output to decline substantially from the 3.1 percent annual growth rate recorded in the third quarter, the negative number caught Wall Street off-guard. It was the weakest economic report since the second quarter of 2009.

Wall Street Journal, "U.S. Economy Unexpectedly Contracts in Fourth Quarter":

The economy reversed from a 3.1% pace in the third quarter largely because federal government spending fell by 15% and private business inventories also decreased. Those drags and others were too much for solid consumer spending to overcome.

Still, for all of 2012, the gross domestic product advanced 2.2%, an improvement compared with 1.8% growth in 2011.

Economic output had expanded for 13 consecutive quarters, but improvement during the summer months was likely derailed by Washington policy makers' inability to strike a comprehensive deal over pending tax hikes and spending cuts until the last minute.

Associated Press, "U.S. economy unexpectedly shrank late last year, in part from Hurricane Sandy":

Economists said the drop in gross domestic product wasn't as bleak as it looked. The weakness was mainly the result of one-time factors. Government spending cuts and slower inventory growth, which can be volatile, subtracted a total of 2.6 percentage points from GDP.

But the fact that the economy shrank at all, combined with much lower consumer confidence reported Tuesday, may raise fears about the economy's durability in 2013. That's because deep automatic government spending cuts will cut into domestic and defense programs starting in March unless Congress reaches a deal to avert them.

Reuters, "GDP contracts on tepid inventories, government spending drops":

That was the worst performance since the second quarter of 2009 and showed the economy entering the new year with no momentum, but economists cautioned against reading too much into the decline in output. "You got a combination of inventories and defense which are taking more than 2 percentage points off the growth rate," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "This is not an indicator of recession."

Still, the contraction, coming against a backdrop of tightening fiscal policy, could create an urgency for policymakers to deal with outstanding budget issues.