GDP falls, deflation looms
The new 4th quarter figures from the BEA are so shocking not because they are surprising, but because one couldn't quite believe one's own expectations:
The U.S. economy contracted at a 3.8% annualized rate in the fourth quarter but the decline would have been worse except that the government counts an unwanted buildup of goods on store shelves as growth.
A clearer picture of the scope of the weakness in the fourth quarter, which excludes the inventory buildup, contracted at a 5.1% pace, the weakest in 28 years.
Even with inventories, the growth rate is the worst since 1982.
. . .
The economy has grown just 1.3% in the past year, the weakest growth rate since 2001.
The business cycle committee of the National Bureau of Economic Research said the recession began in late 2007. But this is the first two quarter decline in GDP.
Consumer spending fell 3.5% in the fourth quarter after a 3.8% drop in the third.
There was a sea-change in the inflation picture. The core price index (excluding food and energy) retreated to a 0.6% annual rate in the fourth quarter from 2.4% in the third, leaving the annual rate at a 2.2% gain.
But headline consumer inflation fell at a 5.5% annual rate, the biggest drop on record.
Given the drop in inflation, real disposable income rose 3.3% annualized in the fourth quarter, after falling 8.8% in the third quarter. The savings rate was 2.9% in the fourth quarter, up from 1.2% in the third.