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The GDP Takes a Hit

The GDP shrank in the last quarter of 2012, declining a small 0.1 percent. While that is minimal, it is the first negative quarter since the second quarter of 2009 and a sharp slowdown from the 3.1 percent growth in the third quarter. Government spending was down sharply, while businesses cut inventories. Foreign trade was down 5.7 percent. But consumer spending was up 2.2 percent, an increase from the previous quarter. And housing continued its slow recovery.

So what’s going on? Good question. It could just be a blip or it could be the start of a new recession. (The usual definition of a recession is two consecutive quarters of declining GDP, or what economists, with their usual talent for assaulting the English language, call “negative growth.”)

Certainly the uncertainty about future government policy, the effects of Obamacare, and the ever-mounting national debt, haven’t helped. Neither have even greater economic problems in other parts of the world, especially Europe. India lowered its bank rate yesterday and China is facing rising labor costs and labor unrest. Even Canada, which has been a bit of a golden boy of fiscal responsibility and good economic management in recent years, has seen its big banks taken down a notch in the last few days.

The stock market, meanwhile, has been booming, up nearly 1,500 points on the Dow since mid-November and now only a couple of hundred points off its all-time-high, reached in October 2007. The stock market is almost always a leading indicator, foretelling the future of the economy. That could be the case here, or it could just be a lot of foreign money fleeing to safer quarters from such deeply troubled economies as Spain, Argentina, and even France, whose employment minister the other day publicly described the country as “totally bankrupt.” He walked it back, of course (one can imagine the phone call from François Hollande), but still.

The GDP dip is certainly no cause for panic. It is trends that matter in economics, not one-time statistics. But it is clearly a time for caution.


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