by Zach Bethune, Thomas Cooley and Peter Rupert
The BEA announced that real GDP increased at a saar of 3.2% for 2013 Q4. The report did little to change anyone’s mind about about the current state of the economy. The recovery continues but at a very moderate pace. Overall, it appears a solid report…although there are always things to quibble about. For the year, GDP increased at an anemic 1.9% pace, following 1.8% in 2011 and 2.8% in 2012. This can be seen in graph below which plots GDP for 10 years after the beginning of the last 5 business cycles. It is clear that the rate of growth of GDP is currently lower than in any of the previous 4 recoveries. Additionally, you can see that the average length between recessions is around 9 years (or 36 quarters). That means that the economy typically expands for 9 years before another contraction. Currently, the US is 6.25 years into its ‘recovery’ from the 2007 recession and is not close to the rate of growth in previous expansions.
Consumption growth picked up, 3.3% in the fourth quarter (the highest gain since 2010 Q4), contributing the lion’s share to overall GDP growth at 2.26 percentage points. Private domestic investment grew at a 3.4% clip, a large decline from its third quarter growth of 17.2% which can be contributed to a slowdown in both residential and non-residential structures. Government consumption expenditures and gross investment declined 4.9%. The government shutdown played a role there.
Private investment has finally risen above its pre-recessionary level in 2007 Q4. Although the housing sector has shown signs of recovery over the past year, residential investment is still far below the peak in 2007 Q4 and it declined again in the fourth quarter.
Thia is an economy that continues to recover but is hampered in part by the lack of vitality elsewhere in the world economy. We will focus on Europe in our next post.