4Q2012 Gross Domestic Product: Second (Preliminary) Estimate

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The Bureau of Economic Analysis (BEA) estimated 4Q2012 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of +0.1 percent, nearly 0.3 percentage point higher than the previous (advance) 4Q estimate and 3.0 percentage points lower than the current 3Q estimate. Personal consumption expenditures (PCE) and net exports (NetX) were positive, while government consumption expenditures (GCE) -- especially defense-related purchases, and private domestic investment (PDI) subtracted from 4Q growth, in that order.

Reactions to the report were mixed. “We still believe that the fourth-quarter GDP figures were a lot better than the headline stagnation suggests,” said Paul Ashworth, chief U.S. economist at Capital Economics. The firm had previously called the initial fourth-quarter report showing a decline “the best-looking contraction in U.S. GDP you’ll ever see.” Ashworth may have a point, because the BEA assumed annualized net aggregate inflation of 0.88 percent for this set of revisions. If the CPI-U had been used to convert the "nominal" GDP numbers into "real" numbers, the reported headline growth rate would have been 1.77 percent. Alternatively, if data for online prices from the Billion Prices Project had been used to deflate the BEA's nominal data, the growth rate would have been 1.02 percent annualized.

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The nod to Ashworth notwithstanding, Consumer Metrics Institute’s (CMI) observation that “neither this 0.14 percent positive growth rate nor the previously published -0.14 percent contraction rate show an economy that is statistically in anything other than a dead stall” fits better with our view. Moreover, CMI wrapped up its GDP report with the following prediction: “This data is still reporting 4Q-2012, a quarter that in retrospect may be viewed as the last gasp of the ‘Great Recovery’ -- before there were significant economic headwinds created by reductions in consumer take-home pay, rising gas prices, sequestered federal spending and accelerating contractions in global trade. If all other components of the economy stay the same, those factors alone could remove something like 3 percent from real-time economic "growth" by the end of the first quarter of 2013: the normalization of FICA deductions alone could reduce consumer spending enough to pull the headline number down by 1 percent, the $.50 per gallon increase in gas prices could similarly remove another 0.5 percent from the headline number, weakening exports could easily reduce the headline number by another 1 percent and the federal budget sequestrations -- if fully implemented and sustained -- should eventually pull (at maximum, despite doomsday rhetoric) an additional 0.5 percent from the headline number.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.