Fourth Quarter GDP Growth

January 27th, 2012 at 8:36 am

I’ll try to post more details later, but fourth quarter GDP just came out and the growth rate was 2.8%, slightly below expectations but an OK pop nevertheless.

Remember, the rule of thumb here—and while it doesn’t hold quarter-to-quarter, it’s pretty reliable year-to-year—is that for every point real GDP grows above the trend rate of 2.5%, the unemployment rate should come down about a half a percent.  So a sustained growth rate close to 3% should shave one-quarter of a percentage point off of the jobless rate.

The questions are speed and sustainability.  Headwinds persist—Europe (and the UK) pose growth and financial contagion risks, oil price spikes, and fading stimulus all come to mind, and the capacity of this Congress to self-inflict economic wounds is also hanging out there (failure to extend the UI and payroll tax cut, e.g., would definitely hurt near-term growth).

Re speed, historically, recoveries out of deep recessions have been more V-shaped than L-shaped.  At the rate we’re trucking along (more ‘L’ than ‘V’), it will take too long–it’s already taken too long–to bring down the jobless rate.

One notable data signal in this regard is the growth rate of final sales, which excludes inventory buildups or drawdowns, and is thus considered a cleaner measure of actual real-time demand in the economy.  Final sales grew only 0.8% last quarter, meaning inventory buildup was a big part of the topline number and suggesting that the real, underlying growth rate of the ongoing expansion is still too slow.  It’s also worth noting that the economy expanded at a relatively plodding rate of 1.6% over the year 2011.

So, have we hit escape velocity from the clutches of the Great Recession?  I’d say no, not yet.  We’re headed in the right direction, we’ve got some mo, but growth is too slow and there’s still too much fragility and slack in the system.

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6 comments in reply to "Fourth Quarter GDP Growth"

  1. Woberz says:

    So, if we can maintain this rate, and assuming no one jumps back in the labor force, it should only take another three years or so to get to the natural rate!

    Awesome! I’ll only just have been out of school for a short time!

  2. Michael says:


  3. J says:

    Mr. Bernstein,

    Love the blog. If you have time, could you please do a post on the idea of escape velocity for the economy. How will we know when we have a full self-sustaining recovery? Thanks!

  4. the buckaroo says:

    …in the spirit of compromise, the US will allow the polluting tar sand oil pipeline in exchange for taking our nuclear waste! Done deal, verdad?

    All the squawk about solyndra & other alternative fuel accessories like battery companies going bust costing 100’s of millions overlooks the facts of the Gulf Spill, the Exxon Valdez, the North Sea spills & on & on & on. How much damage resulted in those fiasco’s…& where was the outrage by the R’s back then. What was their solution…drill, baby, drill is not a solution.

    The Atwaterization of the body politic has stiffened the resolve of the teavangelical assault on our social democracy…time for a smack down.

  5. Jean says:

    Current GDP growth seems to be a leading political indicator that the Republicans are accomplishing what the set out to do … completely undermine the first term of Barack O’bama.

  6. Frank Lynch says:

    Completely off track… Mozart’s birthday, if you plan on closing with a Friday interlude. I have an entire catalog of suggestions.