On Thursday, the government reported that the economy didn’t contract by a tiny annualized 0.1 percent in the fourth quarter of 2012 as originally reported. Instead, the nation’s gross domestic product (GDP) expanded by an equally tiny 0.1 percent. Expectations had been that the revision would go positive by an annualized 0.5 percent.
According to Martin Crutsinger at the Associated Press, aka the Administration’s Press, “the only impediment” to the economy resuming annualized growth of 2 percent or so (which is actually unimpressive in historical context) “may be the across-the-board government spending cuts that kick in Friday – especially if those cuts remain in place for months.” In Crutsinger’s world, the payroll tax increase which kicked in on January 1, gas prices which have risen nationally to about $3.70 per gallon from $3.25 in the past 45 days, and troubling January and early-February sales results at Wal-Mart don’t matter. There’s also an obvious problem seen in his third and fourth paragraphs (bolds are mine):
US ECONOMY BARELY GREW IN Q4, BUT REBOUND LIKELY
The weakest quarter for the U.S. economy in nearly two years may end up being a temporary lull. Economists think growth has begun to pick up on the strength of a sustained housing recovery and a better job market.
Economists said the weakness last quarter was caused by steep defense cuts and slower company restocking, which are volatile. Residential construction, consumer spending and business investment – core drivers of growth – all improved. Steady job growth will likely keep consumers spending, despite higher Social Security taxes that have cut into take-home pay.
Analysts think growth is picking up in the January-March quarter to a roughly 2 percent annual rate. The only impediment may be the across-the-board government spending cuts that kick in Friday – especially if those cuts remain in place for months.
Naroff thinks the economy could grow at an annual rate of around 2 percent in the first quarter of 2013 and an even better rate of 4 percent in the April-June quarter. But he and other economists warn that lawmakers will slow growth if they fail to reach a budget agreement indefinitely. If the spending cuts last two weeks or longer, Naroff said they could shave a half-percentage point off first-quarter growth and a full percentage point off second-quarter growth.
It’s difficult to see how Naroff could possibly be correct, unless he thinks that we’re all somehow going to get demoralized if sequestration keeps going for a while. Even AP reports acknowledge that Americans are currently shrugging it off.
Looking at the first quarter and only at what could conceivably be proven, January and February are already over. It’s hard to imagine how one month of government spending “cuts,” which are really “reductions in projected spending growth,” could have the kind of impact on first-quarter GDP Naroff fears.
Using round numbers, for Naroff’s half-point-impact to occur on quarterly economic output of almost $4 trillion, there would have to be a one-month real reduction (not merely a reduction in projected growth) of $20 billion in government purchases of goods and services and investments in durable goods — the only elements of government spending which affect GDP. Additionally, all of it would have to be demonstrably traceable to sequestration. The worst and vastly exaggerated current fiscal year impact projected by the sky-is-falling crowd in Washington is $85 billion during the next seven months, which works out to $12 billion per month between now and September’s fiscal year-end — and again, the already mythical $85 billion has almost no real cuts.
Thus, if the current quarter disappoints, it won’t be because of sequestration. But, as previewed in Crutsinger’s writeup, you can pretty much count on the press doing everything it can to assign the blame there anyway.
Cross-posted at NewsBusters.org.