Tag: Business cycle

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.