Leave it to the government to come up with a screwy way of reporting data. This is the same government that apparently doesn't know how many people it employs, but that's a different story. It was widely reported that GDP fell in Q4. Of course, -0.1% is really flat, but it was below the 1.0% forecast. I would argue that without even examining all of the components, which upon closer review indicate that the important parts of the economy actually grew, those trying to gauge the health of the economy should conclude that GDP rose in Q4.
But that's not what the media said:
- New York Times: GDP Shrinks
- Financial Times: U.S. Economy Slips Into Reverse
- Washington Post: Yikes! Economy Shrank
How can I refute these headlines? I will go straight to the source document. The answer is right near at the beginning:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.
The bold emphasis is my own, and this is the point I am trying to make. The BEA describes a change in the annualized growth rate from quarter to quarter and not a year-over-year growth rate like most of us assume. The actual growth in the economy from Q4-11 to Q4-12 was 1.5% (and 3.3% on a nominal basis). In Q3, real growth was 3.1% the way the BEA reports it, but it was 2.6% comparing Q3-12 to Q3-11.
There was definitely a slow-down in Q4, but for those worried about a recession, these fears seem quite premature. This release is the "Advance" estimate. The second estimate will be published on 2/28 and the final one on 3/28. Expect it to change, as the standard deviation from first to third, according to BEA, is 0.5%. The market has spoken, with stocks rising and bonds falling, indicating to me that the slightly soft report wasn't exactly alarming.