Economy Grows Fairly Decently in Q4

Economic growth slowed down a bit in Q4, but remained fairly healthy. The BEA announced today that real GDP increased 3.2 percent last quarter, due almost entirely to private sector growth. Slowdowns in federal spending actually cut GDP growth by 0.98 percent—about two-thirds due to cuts in defense spending and one-third due to cuts in domestic spending. This is the price of austerity: if federal spending were growing at a normal rate at this point in a recovery, GDP growth last quarter probably would have stood at around 4.5 percent or so.

Everything else was pretty positive:

The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and state and local government spending that were partly offset by negative contributions from federal government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Consumer spending increased decently, and inflation was extremely subdued at 1.2 percent. All in all, a decent report, if not a spectacular one. Now we all get to wait and see if it’s good enough to offset all the turmoil in emerging markets that’s got everyone so jittery.