On Friday, the U.S government released its first guess at the rate of U.S. economic growth in the fourth quarter of 2012: 2.8 percent. How one feels about this -- complacent, discouraged or ecstatic -- depends entirely on the context.
Complacency: 2.8 percent economic growth is enough to keep unemployment from rising, but not enough to keep it falling. The number is a little lower than private forecasters were predicting, but against the backdrop of a year in which there was zero growth in the first six months and 1.8 percent growth in the third quarter, the trend line is something to take heart from. If U.S. economic growth continues to accelerate in 2012 at the same rate as over the last six months, by Election Day 2012 the economy will be booming.
Discouragement: However, a look at the internals of the report suggests that continued acceleration may be in doubt. Consumer spending started to weaken at the end of the quarter, and a significant part of new economic activity came from inventory buildup -- companies producing goods and putting them on shelves, but not necessarily selling them. The good news: Automakers are pumping out cars at the fastest rate in years. But will consumers continue to buy them? That's the big question. Many forecasters are predicting that economic growth will slow in the first quarter of 2012. When an economy starts decelerating back down from 2. 8 percent rate of growth, there's no reason to celebrate.
Ecstasy: But the real story here is government spending. In 2011 overall, government spending declined by 2.1 percent, the most since 1971! In the fourth quarter alone, government spending declined by a phenomenal 7.3 percent. If government spending had remained steady GDP growth would be a perfectly robust 3.7 percent. Unemployment would be coming down, and Obama would be skating to reelection.
Of course, if congressional Republicans had had their way, government spending would be falling even faster. Plug those numbers into the GDP equation, and the U.S. economy might not be registering any growth at all. For an excellent example of the alternative, one has only to look at the United Kingdom, where so-called expansionary austerity has driven the economy directly into recession.
So be thankful for small favors. Compared to what's going on in most of Europe, 2.8 percent growth is just dandy.
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