The nation’s gross domestic product, measuring all goods and services produced in the United States, decreased at an annual rate of 0.1 percent in the fourth quarter of 2012, the worst showing since the spring of 2009, a sharp and unexpected decline from the previous quarter’s 3.1 percent growth rate. Two successive quarters of declining growth would indicate a recession.
But several caveats accompany Wednesday’s figure: it’s preliminary and will be revised twice before it’s made final (the next time on Feb. 28). And most of the decline is attributed to one-time events, including reduced exports, anxiety over budget negotiations in Washington in December, which paralyzed business inventories, and the sharpest drop in military spending in 40 years.
Federal spending fell a significant 15 percent in the quarter. Military spending fell 22 percent. The Midwest’s drought also reduced farm inventory investment by about $24 billion in the fourth quarter, after a $28 billion drop in the previous quarter. And Hurricane Sandy, which made landfall in New Jersey on Oct. 29, also caused a $44 billion decline in private and government losses, disrupting factory production, offices and transportation facilities, though some of the losses were offset by an increase in emergency services and rebuilding activities.
Just as clearly, underlying indicators show that the economy is not quite in recession territory, though the signs are conflicting.
Disposable personal income increased $235.2 billion (or 8.1 percent) in the fourth quarter, compared with an increase of $62.7 billion (2.1 percent) in the third. Adjusted for inflation, it’s still an increase of 6.8 percent, with personal spending rising by $95 billion (3.3 percent), compared with an increase of $88.6 billion the previous quarter. That suggests that at the retail, everyday level of spending by ordinary Americans, there’s more money to spend, merchants are reaping the benefit, and the economy is improving. The personal saving rate has also improved, to 4.7 percent, compared with 3.6 percent in the third.
In a number that should encourage the building and real estate industries in Florida, residential investment rose 15.3 percent in one more sign of a housing market on the mend. (The Federal Reserve on Wednesday, in an 11-1 vote, said it will continue buying mortgage bonds and Treasurys at the rate of $85 billion a month because, it said, economic activity has “paused.”)
Markets reacted accordingly: by midday on Wall Street, the Dow seemed indifferent to the report, trading flatly overall—no gains, no losses. It is one more indication that when it comes to GDP calculations, the figures are often deceiving: growth can seem robust, but as happened in the 2000s, GDP was consistently stronger than ordinary Americans’ financial conditions, because the GDP accounts for, say, corporate profits—which soared—in the same equation as it does stagnant wages or lost jobs: so while job creation can be anemic, growth can still seem strong. Today’s figures turn the tables somewhat: some of the economy’s larger sectors are experiencing big drops, but the drop is not reflected on Main Street.
Nevertheless, Wednesday’s GDP report adds to a cloudy mood. A day earlier, the monthly Consumer Confidence Survey pointed to yet another decline, with those claiming business conditions are “good” declining to 16.7 percent from 17.2 percent in December, and those stating business conditions are “bad” increasing to 27.4 percent from 26.3 percent. Consumers’ assessment of the labor market has also grown more negative. Those saying jobs are “plentiful” declined to 8.6 percent from 10.8 percent, while those claiming jobs are “hard to get” increased to 37.7 percent from 36.1 percent.
In current dollars, the United States is now a $15.8 trillion economy.