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Cut to GDP Growth Doesn't Necessarily Spell Trouble for Economy

Take out the shutdown and tough weather, and you've got slow but not terrible growth.


Buried in the snow.(Chet Susslin)

Last summer, the U.S. economy seemed like it was just starting to hum along. The government reported growth of 4.1 percent in the third quarter, the fastest it had been since 2011. Then, the fourth quarter came along, bringing with it a government shutdown and the start of snow, and the economy's growth slowed by nearly 2 percentage points—dropping to 2.4 percent, according to the latest estimate from the Bureau of Economic Analysis.

Time to worry? Not yet. BEA's lower growth estimate came as no surprise to economists. When you consider what the economy went through in the final three months of the year, some economists argue its performance wasn't so shabby.


"While 2.4% is fairly sluggish, it was despite more adverse than usual weather at the end of the quarter and the government shutdown at the start," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said in a note to clients after the report's release.

BEA's revision reflects cuts in consumer spending, lower inventory investment, fewer exports, and less state and local government spending than initially thought.

The 16-day partial government shutdown is still believed to have subtracted 0.3 percentage points from growth, a spokeswoman for the Bureau of Economic Analysis confirmed Friday. The bureau doesn't specifically break out weather effects on the economy unless there are catastrophic events, she said, but economists widely see the tough winter weather in December, January, and February as having contributed to the spate of soft data that have been released recently.


"Part of [the recent] softness may reflect adverse weather conditions, but at this point it's difficult to discern exactly how much," Federal Reserve Chair Janet Yellen told members of the Senate Banking Committee on Thursday. "In the weeks and months ahead, my colleagues and I will be attendant to signals to indicate whether the recovery is progressing in line with our earlier expectations."

Add back the 0.3 percentage points from the government shutdown and a little bit more from the weather's drag, and the recovery seems to be progressing as expected, said Robert Dye, chief economist of Comerica Bank. "This is not a 4 or 5 percent [growth] economy, it's a maybe something in the order of 2.5 to 3 percent economy, so that's not a bad number," Dye said of Friday's revision.

Economists don't expect much of a pickup in the first quarter, thanks to that bad weather and those weak data readings, but many remain hopeful that growth in 2014 is likely to beat out the 1.9 percent growth of last year.

The Bureau of Economic Analysis will release an additional update on fourth-quarter growth on March 27.


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