Why are we describing the economy’s contraction as a “surprise”?
The U.S. economy shrank for the first time in more than three years in the fourth quarter, underscoring the halting nature of the recovery. But the strength of consumer spending and business investment suggested that the economy will grow, albeit slowly, this year.
Gross domestic product—the broadest measure of goods and services churned out by the economy—fell at a 0.1% annual rate in the fourth quarter of 2012, according to the government’s initial estimate out Wednesday.
The details weren’t as discouraging as the headline. The drop, a surprise, was driven by a sharp fall in government spending and by businesses putting fewer goods on warehouse shelves, as well as by a decline in exports. The mainstays of the domestic private economy—housing, consumer spending and business investment in equipment and software—were stronger.
Research firm Capital Economics called the report “the best-looking contraction in U.S. GDP you’ll ever see.” Forecasters didn’t see the decline as a harbinger of recession. They predicted the U.S. will expand at around a 2% pace in the current quarter, though the mood could shift Friday when the government releases its monthly snapshot of the job market.
I understand that certain fundamentals appear to indicate that areas of the economy are improving. And perhaps they are. But we just spent the last four years watching Barack Obama
preside over cause the worst recovery since the Great Depression. Millions of people have simply given up trying to find work, which is the only reason why U3 unemployment isn’t at 12% or more. Inflation is higher than the CPI indicates. Yes, the stock market is doing well, thanks in no small measure to Barack Obama’s deployment of an extensive scheme of crony capitalism and corporatism. But this is hardly the Roaring Twenties.
And in that context, a small contraction really ought not be that much of a surprise.