I headline this as a “shock” report with some irony, because that’s how the media is reporting it (“But… but… the President said we’re on the right track to a strong recovery!”) In fact, most serious economists were predicting a very weak fourth quarter. It’s just that nobody in the media wanted to relay their warnings during the election.
According to the Commerce Department, the U.S. economy actually contracted in the fourth quarter of 2012, slipping by 0.1 percent. Very few analysts were predicting negative growth; most of them thought it would slow to about 1 percent.
Joe Weisenthal at Business Insider tried to paint a little happy face at the bottom of this grim report by noting that a great deal of the collapse was due to “a stunning fall in government spending.” True, but the better-than-expected third quarter numbers were due to a stunning rise in government spending. For those unfamiliar with the calculation of Gross Domestic Product, it includes government spending. This is both reasonable (because the government buys stuff) and nuts (because the government sucks the money it uses to buy stuff out of the private sector.)
At any rate, we’re not going to have any more stunning government spending pumping up Gross Domestic Product. The private sector is still reeling from tax increases imposed, very explicitly, to reduce the deficit. Barack Obama’s past four years of insane deficit spending left us with the same unemployment rate as he started with… measured against a smaller workforce and weaker economy. If you factor out the 1.27 percent decline in government spending from the fourth quarter numbers – something Big Government groupies would never consider doing, if the report looked good – and allow for the likelihood of future revisions, you’ve still got an economy tottering on the edge of recession, with private-sector growth lower than 1.5 percent. That’s a bad place to be, after four years of the government piling up unprecedented levels of debt, and the private sector struggling to hold up its end of the ObamaCare disaster.
It’s always tricky to predict the economic future, but there are some gloomy indicators. Weisenthal at Business Insider is reassured that Q4 personal consumption looks good… but consumers just got walloped by the end of the Social Security payroll tax cut, and it has definitely affected their spending outlook. In fact, the Associated Press just reported today that “U.S. consumer confidence plunged in January to its lowest level in more than a year, reflecting higher Social Security taxes that have left Americans with less take-home pay.” They’ve also got a justifiably “pessimistic” outlook on the job market, which is not the kind of attitude that would sustain epic growth in consumer spending.
There’s no way to fit this GDP report, or the last few unemployment reports, into the Obama narrative of a “recovering” economy heading down the “right” track. This is anemic growth at best, pre-recessionary at worst. We need far more than anemic growth or virtual stasis to heal the long-term damage to the job market – the economy would have to grow at something like 6 or 7 percent annually to restore the pre-Obama workforce by the time his second term ends. And if he meant a single word he said during his hooray-for-socialism second inaugural address, he won’t support any of the measures that would produce explosive growth, dramatically increased employment, and soaring consumer confidence. He’s much more likely to portray the problem as insufficient government spending… and his zeal to correct that “problem” will take America the rest of the way into default.