GDP Revised Up: Crosses Zero! Woo-Hoo!

February 28th, 2013 at 4:27 pm

And the point about that is this: we tend to obsess about whether the economy is growing (good) or shrinking (bad).  But clearly, contracting at 0.1% last quarter, as in the initial GDP report, is hardly different than growing at 0.1%, as in today’s revision.  Crossing zero is a lot less important than growing fast enough to create enough demand to actually nudge down the unemployment rate.

For that, you have to grow above trend and trend is probably a bit north of 2% right now.  That’s considerably higher 0.1%, of course, but as I noted when this report first came out, we’re probably doing better than that.  The quarterly numbers are volatile so I like to look at year-over-year; by that measure, GDP is up 1.6% over the past year.  Add in the sequester and other headwinds I worry about here, and it’s hard to envision much progress on jobs, wages, and most people’s incomes in the near term.

Once again, and much like the jobs’ reports that keep showing the loss of state and local employment, the GDP report shows that contractionary fiscal policy, which shows up as less government spending, has been pretty relentlessly whacking away at real GDP growth since the Recovery Act faded out.  The figure shows the government sectors’–fed, state, and local–contribution to real GDP growth.  In the most recent quarter, that impact was particularly large, subtracting 1.4 percentage points off of growth.

Source: BEA

That’s a warning…and I’m Cassandra.


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4 comments in reply to "GDP Revised Up: Crosses Zero! Woo-Hoo!"

  1. D. C. Sessions says:

    Nice gown. It totally dominates the usual coat and tie. But the hair isn’t an improvement.

  2. Phil says:

    Hey, you and Paul Krugman can’t BOTH be Cassandra…

  3. Ted Boettner says:

    That’s hard to reconcile with the CBPP’s support of an additional $1.4 trillion in additional spending cuts. I think that’s choosing politics – i wanna be in the serious crowed – over policy – which should mean an end to any unnecessary austerity.

    “Even the center-left Center on Budget and Policy Priorities, which has done heroic work documenting the impact of the cuts, sometimes falls into the same trap of playing the right’s game by emphasizing the debt-to-GDP ratio as the test of virtue. In a paper released January 9, the center’s Richard Kogan recalculated the numbers and concluded it would take only $1.2 trillion more in budget cuts to stabilize the debt ratio, better than the Obama figures. But why validate that goal at all? Here again, liberals reinforce the mistaken view that the prime goal should be targeting the debt ratio.”

    Bob makes a great point!

    • jo6pac says:

      President Obama has miscalculated

      I disagree with Bob on this 0 has always said he’s into cuts on SS, Medi-Care, & Medi-Cad and that’s the reason 0 created this problem. He has the repugs right where he wants them, they’ll take the blame for the cuts in these programs and he’ll get the credit on ws for doing it. The more effective evil, a repug potus could have never done this but a so called demodog can.