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The Menace of a Double Dip

The initial numbers for 2012 Q4 show the economy shrank at 0.1%. Are we entering a double-dip recession? Ed Morrissey breaks the numbers down a bit:

In other words, much of this drop seems to be a lack of inventory expansion. Real final sales to end purchasers rose, even if it didn’t go up by much. That would indicate that inventory expansion in Q3 and prior periods was based on overly-optimistic views of the economy.

Government spending also fell dramatically by 15% in Q4, meaning that private spending was actually up. Of course, it was up in Q3, so if you average the two quarters out, we’ve got a slow economy, but not one in recession. Possibly.

A few reasons not to run for the hills just yet:

1) The numbers are preliminary and will be revised again and again over the next year and a half. Remember that the economy was actually in recovery when Bush was voted out in 1992 but it took a while for the numbers to become clear. By the same token, the economy was crashing badly in the final quarter of 2008 but that didn’t become clear until over a year later. The most dramatic revision is likely to occur at the end of February, but don’t be surprised if the numbers change a lot. That could mean the economy is better; but it could also mean it’s worse. It’s unlikely to be good.

2) A shrinking economy is at variance with a number of other economic indicators, notably falls in unemployment, jobless claims and job creation figures. Long-term unemployment is starting to fall for the first time in a while and housing is starting to recover. This may indicate the growth number is bad. Or may be a lagging indicator.

3) If the economy is slowing down, it means that the “Debt Truthers” like Paul Krugman and, alarming, Bruce Bartlett, are even more full of shit than they were a week ago. The idea that our budget is coming into balance is predicated on strong economic growth. If that isn’t happening, the debt is still a Big Fucking Deal.

4) Sniping about the media calling economic news “unexpected” is silly. Economic figures are very noisy and almost never come in at expectations. The news is always “unexpected”. That’s not media bias; that’s media ignorance of how economic figures work.

5) I suspect that the real reason Q4 was slow was because of the uncertainty created by the fiscal cliff combined with the impact of Hurricane Sandy. The last time we saw growth slow like this was … during the debt ceiling crisis. If Congress and the President would quit creating these self-induced economic crises, we might be in much better shape. And having a Katrina-level event — one that cause $60 billion in direct damage and God knows how much in lost productivity in the midst of this political mess was a huge blow. Sandy alone might have knocked a percentage point of our growth.

So we should be concerned, but I’m not ready to panic just yet. 2013 Q1 might also be a bit weak with the expiration of the payroll tax holiday and I do think this will get Congress to punt the debt ceiling and possibly the sequester just to keep the economy from any more shocks.

Update: More:

For one thing, most of the collapse was due to a stunning fall in military spending. That’s not good for GDP, but it doesn’t reflect the real underlying strength of the economy.

And it’s mostly due to war drawdown. That’s a good thing for everyone!

There was also a big decline due to a reversal of big inventory buildups.

What’s key is that the numbers that really reflect the strength of the economy were much better.

Personal consumption, fixed investment, and equipment/software all grew nicely. This is the real economy humming along.

I’m not quite that optimistic. We had a real problems last quarter with the fiscal cliff and Sandy — problems that have not magically gone away. I’m expecting Q1 to be mediocre if we’re lucky.

14 comments

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  1. Mook says:

    With $16 Trillion in cumulative debt not including unfunded liabilities (which are a multiple of that cumulative debt) and $1 Trillion + new debt added each year with no end in sight, there is no way this isn’t going to end very badly. Currently, the Fed govt. borrows over .40 of every 1.00 it spends.. And that percentage will grow in future yrs.

    For most people under the age of 80, this is the first time in our lifetime that cumulative debt has exceeded GDP. The last time was during WWII, and the only reason we were able to financially recover from that was because the rest of the world had been blown to smithereens after WWII and we had a virtual monopoly on manufacturing for decades given us a big head start. With growing economies in China, India, Brazil, etc. we have no similar “monopoly”, only tough competitors.

    In the short term and possibly intermediate term, there may be upside. But there can be no happy ending to this debt catastrophe fueled by welfare entitlement and big govt spending.

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  2. AlexInCT says:

    With $16 Trillion in cumulative debt not including unfunded liabilities (which are a multiple of that cumulative debt) and $1 Trillion + new debt added each year with no end in sight, there is no way this isn’t going to end very badly.

    HERETIC!

    Keynesian economics and Obama the magic man will save us all! Anyone that says otherwise is a racist/sexist/homophobe/baby killing & eating/lying evil monster. If we stop the wealth redistribution the world will implode. So shut up.

    /libtard off.

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  3. Hal_10000 says:

    With $16 Trillion in cumulative debt not including unfunded liabilities (which are a multiple of that cumulative debt) and $1 Trillion + new debt added each year with no end in sight, there is no way this isn’t going to end very badly. Currently, the Fed govt. borrows over .40 of every 1.00 it spends.. And that percentage will grow in future yrs.

    Your figures are out of date. Debt is coming down, regardless of projections to about 25% of budget/ $900 billion FY2013 and lower for FY2014 depending on decisions with the sequester. That was the budget control act accomplished. In addition, we have a lot of automatic spending cuts coming in place: tapering unemployment benefits, the end of two wars, etc. If Congress just doesn’t make things worse, we’ll can get things under control within 5-10 years. Sooner if they exercise some spending discipline.

    The long-term budget is the bigger issue; specifically with entitlements. But no one wants to touch that. The smarter thing to do would be to stop financing the debt on 6-month notes and lock in the low interest rates for a few decades. no one’s talking about that but it could save us trillions down the road.

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  4. Mook says:

    Your figures are out of date. Debt is coming down

    I wish you were right. I’m justifiably skeptical that entitlement benefits can be cut as counted on in any rosy scenario. The only govt. cuts in spending appear to be on defense

    http://www.concordcoalition.org/issues/indicators/projected-debt

    If you have data to the contrary, please post it

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  5. Hal_10000 says:

    Here is CBPP’s analysis based on the CBO’s 2012 data. The data you cite is 2011 before the BCA and fiscal cliff.

    That projection is not good, incidentally. LIberals have been citing it saying the budget problem is “solved” but they note, correctly, that you need more cuts, spending discipline, economic growth. And that still just stabilizes us at 70% GDP. And it doesn’t account for the entitlements explosion.

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  6. Iconoclast says:

    If Congress and the President would quit creating these self-induced economic crises, we might be in much better shape.

    These”self-induced economic crises” are arguably due to the (Democrat-controlled) Senate not doing its job of passing a budget. Usually, when one doesn’t do his job, he gets fired. Apparently, that doesn’t hold true for Senators…

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  7. Hal_10000 says:

    These”self-induced economic crises” are arguably due to the (Democrat-controlled) Senate not doing its job of passing a budget.

    ^^^ This

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  8. Xetrov says:

    It’s the GOP’s fault.

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  9. CM says:

    According to the BEA, “government consumption expenditures and gross investment” knocked 1.33 percentage points off the total change in economic growth. If government spending had just been neutral — that is to say, if it had neither contracted nor expanded — the economy would have grown by 1.23 percentage points rather than shrunk by 0.1 percentage points.

    But this isn’t the first time that total government spending and investment has been a drag on growth. It pulled growth down by 0.67 percentage points in 2010, .34 in 2011, and .33 in 2012.

    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/30/government-is-hurting-the-economy-by-spending-too-little/

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  10. CM says:

    From Xetrov’s link:

    The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That was a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.

    Rep. Kevin Brady, R-Texas, incoming chairman of the Joint Economic Committee, said the “stunning contraction” can’t be blamed only on defense cuts and fiscal crisis talks — though he did say accelerated defense spending in the third quarter “artificially boosted” growth at the time.

    Makes sense. If your spending spikes (meaningfully) in one quarter which results in ‘growth’, you’re almost always going to ‘contract’ in the next. Otherwise it wasn’t a spike at all. Or some other massive immediate postiive change has occured.

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  11. AlexInCT says:

    Here is CBPP’s analysis based on the CBO’s 2012 data.

    You mean the same CBO that has been projecting that the Keynesian policies of the current crooks in charge was going to fix things as far back as 2009 and getting it horribly wrong every damned single time? These projections aren’t worth the paper they are printed on.

    I think I already had this argument with CM, on another post, and showed quite conclusively how unreliably stupid the politically motivated CBO projections pretending these people are doing anything that will improve the current abysmal economic situation, are, simply by showing how they have gotten it wrong 4 years in a tow. I wouldn’t trust any kind of predictions from the CBO at all because they are going to be god-awful lies intended to provide cover for the most economically illiterate and destructive bunch of crooks ever to be in charge of this country.

    The one fact that has remained constant is that regardless of any and all predictions that things would get better, things have gotten worse, not even stayed flat, that this government is running trillion dollar plus annual spending sprees to buy votes from non producers, has done so without a budget for the same amount of time, leading me to worry that the numbers are far, far worse, and the stakes are going to get higher as they have jacked up taxes AND spending which are going to basically destroy the economy at a faster pace.

    But we can keep pretending these fuckwads have anything under control and those that point out we are going to keep tacking on a minimum of $1 trillion a year for the foreseeable future are the ones that are wrong, because the CBO’s piece of fiction says that this time it really, really will happen.

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  12. CM says:

    The Keynesian policies used following 2008 were never designed to ‘fix’ anything, they were designed to save the country from economic collapse. You’re still using the same straw-man argument on this Alex. No idea why.

    I think I already had this argument with CM, on another post, and showed quite conclusively how unreliably stupid the politically motivated CBO projections pretending these people are doing anything that will improve the current abysmal economic situation, are, simply by showing how they have gotten it wrong 4 years in a tow.

    Ahem, you failed (completely) to demonstrate how or where or why the CBO were/was politically motivated, or that anyone else had better projections. They’re required to project, and they can only do so using the best information available. See Hal’s first reason to not run for the hills above.

    I wouldn’t trust any kind of predictions from the CBO at all because they are going to be god-awful lies intended to provide cover for the most economically illiterate and destructive bunch of crooks ever to be in charge of this country.

    So which detailed analysis do you trust? None?
    The government doesn’t the have that luxury. They NEED to look ahead, and therefore they need to use data and analysis to do so.

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  13. Hal_10000 says:

    Alex, I agree that the CBO’s projections always need to be taken with some salt. But they are a very fair organization: the only analyze what is put in front of them. They have warned us that Obamacare has some long term fiscal issues. They have been warning us for ten years about entitlements. And their earlier projections were based on the economic data they had, which underestimated just how badly the economy crashed in 2008. Their analysis is very detailed about the caveats and likely policy. So I wouldn’t dismiss it out of hand in favor of hand-waving about trillion dollar deficits as far as the eye can see.

    Remember, they’ve also missed the the other way before, overestimating the deficit.

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  14. AlexInCT says:

    Alex, I agree that the CBO’s projections always need to be taken with some salt. But they are a very fair organization: the only analyze what is put in front of them.

    If they stressed this fact AND started every one of their predictions with language pointing out that since what was put in front of them was a lot of fictional nonsense, their conclusions would be the same – in terms computer programmer types understand, the principle of GIGO, or garbage in, garbage out – I would grant you that. However, they never do any of that unless they are reporting numbers republicans want. Frankly I believe that the CBO is about as unpartisan as the EPA is, which means they are a bunch of leftist hacks pretending not to be that.

    There hasn’t been a single CBO projection in the last 4 or 5 years that hasn’t been based on pure bullshit, and yet they keep cranking out predictions and pretending they should be taken seriously. Look at Obamacare, where the CBO actively defended the most condensed pack of lies and manipulated nonsense ever put together to sell a horrible lie, if you need more proof. After they put together that pile of garbage they spent months defending their numbers instead of admitting that since the whole thing was rigged from the get go their numbers where not just meaningless, but outright lies and deceptions intended to make a giant turd sandwich look like a 7 course meal at a 5 star restaurant. Fuck the CBO. Now that Obamacare was passed for us to see what is in it, we are getting a slew of “corrections’ form the CBO that show what was blatantly obvious to everyone that was not a leftard and had more than 2 firing neurons in their brain: that this thing was never going to do anything to fix healthcare, but instead was specifically designed to bankrupt private healthcare as it drove costs up at an even faster pace while forcing massive rationing of care as the system was flooded with millions of new people looking for their free shit.

    The CBO’s predictions are absolute crap and anyone that has taken any of them seriously in the last 5 years deserves the ass rape these leftist are perpetrating on the American people. As I already pointed out, they are not worth the paper they are printed on, but you can keep deluding yourself and saying that otherwise.

    Remember, they’ve also missed the the other way before, overestimating the deficit.

    Certainly not in the last 5 years? Especially with us not having a budget and all that for the last 4 years…..

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