Actually the GDP Numbers Are Not Reassuring

For some reason the upwardly-revised 2nd estimate for 4th quarter 2015 real GDP growth has reassured many analysts that the US economy is doing all right. Here’s an excerpt from the Bureau of Economic Analysis (BEA) press release:

Real gross domestic product — the value of the goods and services produced by the nation’s
economy less the value of the goods and services used up in production, adjusted for price
changes — increased at an annual rate of 1.0 percent in the fourth quarter of 2015, according to the
“second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased
2.0 percent.

The GDP estimate released today is based on more complete source data than were available for
the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 0.7

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

Now to be sure, there are a million-and-one things wrong with using the federal government’s official GDP statistics as a barometer of economic health. (For one fun example, see my critique of the “inventory adjustment” tomfoolery from 2010.) Notice some key things here:

==> Yes, this new estimate of 1.0% real growth in 4q 2015 is better than the original estimate of 0.7% growth, but it is still half of the 3rd quarter growth. For those who rely on these numbers, why are we supposed to be happy that the annualized growth rate fell in half from 3rd to 4th quarter 2015?

==> The boost in GDP was due to consumers and the federal government spending more, in contrast to a large decline in business investment. This may be good news for Keynesians, but it doesn’t bode well in the minds of people who think saving and investment provide sustainable growth.

Yet even according to the White House’s own chart (posted above), we can see that the recent announcement is hardly grounds for breaking out the champagne. In the chart above, we added everything in red. Look at how the quarterly 2015 growth figures compare to 2007. Why is all of this good news?