Monday, January 30, 2012

Looking Back at the Fourth Quarter

On Friday, the Bureau of Economic Analysis released its first estimate of growth for the fourth quarter of 2011, and the news was good but not great: GDP increased at 2.8 percent. That's up from the 1.8 percent growth we had in the third quarter, and the highest quarterly figure we've seen since the second quarter of 2010. It also meant, though, that for the entire year, GDP growth was 1.7 percent, which is fairly anemic.

The concern over that fourth-quarter number - aside from the fact that everyone would like to see it be a little bit higher - is that much of the growth came from increases in inventories. If you subtract inventory growth from overall GDP growth, you see that the real growth in sales was just 0.8 percent in the fourth quarter.

The most positive way to look at the fourth quarter is to separate the figure into public and private sector growth. While government continues to shrink, the private sector actually grew at a robust 4.7 percent for the quarter. That's a sign of real strength for this economy.

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