Q4 2010 GDP Tosses Its Government Crutches

Making It On Its Own

The Bureau of Economic Analysis (BEA) today reported on fourth quarter Gross Domestic Product (GDP), and the news was mixed. While the pace of economic growth sped up from Q3, it missed economists' forecasts. Also, according to the Treasury Secretary, the pace of growth is not enough to lift the labor situation, and so the recovery is threatening to be a jobless one. That said, it appears the economy has gained its footing, and will not be needing its government crutches any longer (or until the next hacking at the knee).

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Q4 2010 GDP Report

The BEA reported that Q4 GDP increased 3.2% over Q3, continuing the nascent economic recovery. Still, we have to question the stability of economic expansion, given that it is coming without a commensurate increase in jobs. When such a large portion of the country is underemployed, and while credit is less available to risky borrowers, you can expect a dampening effect on GDP growth.

The pace of economic growth exceeded that of Q3, which at final tally, was marked at 2.6%. However, economists surveyed by Bloomberg had forecast a pace of 3.5% at the consensus. Thus, investors found conundrum as to whether the news was good or bad today. Then Treasury Secretary Geithner commented on the quarter's result from Davos, Switzerland, where he was attending the World Economic Forum. Geithner helped settle that debate in saying, "It's not an expansion that's going to offer a rapid decline in unemployment." According to economists, we need greater than 3% growth to create jobs, and the higher above 3% we get, the more job creation we will have. But if unemployment threatens consumer demand, which historically contributes 70%+ of GDP, well then we'll need to find a driver from somewhere else. That's certainly why the President is seeking to get it from international trade, but will that change lead to the employment of more Americans? Some say yes it will and is…

Still, Geithner called the recovery a "sustainable expansion," and that has got to be better than a government propped up one, which we saw for most of the first year out of the red. It is certainly better than recession, and beats the hell out of the terrifying financial crisis just survived (by some, or so we hear).

Usually, the devil is in the details of all economic reports, so we thought we would get to unveiling those demons for you. With our cross at the ready, we discovered instead only good angels. The drivers of fourth quarter growth were personal consumption expenditures, an archangel of a factor, growing 4.4% - the fastest rate since the start of 2006; exports, a saint prayed for; and nonresidential fixed investment, a miracle desperately sought. And more good news: there was a decrease in the synthetic driver of federal government spending.

Most of the media, government gurus and well-paid econo-speak-easies (I can take liberty with language, cause it's my blog) were pleased with the pace of inflation too, as Q4's price index, excluding food and energy, increased by 1.1%, versus the 0.4% increase in Q3. Taking food and energy into account, because it matters to some (like say Tunisians and anywhere where the price of commodities make up a significant portion of income), well then prices rose more significantly, up 2.1% (after a 0.7% increase in Q3).

The Greek is extremely concerned about the burgeoning demand for scarce resources and the dilution of fiat currency that together threaten to transfer these prices through to finished goods. It may not be so farfetched to imagine New Yorkers on the streets before too long, protesting hikes in MTA fares, not dissimilarly to Tunisians protesting sugar prices. But for now, we suppose you can take solace in the growth of GDP, however, be warned that this "advance estimate" of GDP is often significantly revised.



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