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.

Dome buried in snow
National Journal
Catherine Hollander
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Catherine Hollander
Feb. 28, 2014, 5:04 a.m.

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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