US GDP growth was a weak 0.4 percent in Q4 2012 but corporate profits were near their record highs

1. Economics for your Classroom from
Ed Dolan’s Econ Blog
New Data Show US GDP
Growth Weak at Year’s End
but Profits Near Record Highs
Posted March 29, 2013
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2. US Economy Barely Grows in Q4 2012
 The third estimate of US real GDP
for Q4 2012 showed growth at an
annual rate of just 0.4 percent
 That is only slightly better than the
0.1 percent reported in the second
estimate
 The advance estimate of Q1 2013
GDP will be available at the end of
April
March 29, 2013 Ed Dolan’s Econ Blog

3. Expansion Interrupted
 According to standard business cycle
terminology, the recession phase of the
business cycle is the downward
movement of GDP from its previous peak
 The recovery phase is the upward
movement from the trough (low point) of
the recession and continues until GDP
again reaches its previous peak.
 Once GDP moves above its previous
peak, the expansion phase begins.
 The expansion continued in Q4 2012 but
at the slowest rate since Q1 2011
March 29, 2013 Ed Dolan’s Econ Blog

4. Sources of Growth by Sector
 Consumption contributed 1.28 percentage Contribution by sector to the
points to Q4 growth, slightly below its 0.4% GDP growth in Q4 2012
recent average
 Investment contributed 0.17 percentage
points. Fixed investment was strong but
more than offset by falling inventories
 Exports contributed -0.4 percentage points,
the first quarterly decrease in exports since
Q1 2009. Net exports made a positive
contribution because imports fell faster than
exports
 The government sector also made a
negative contribution to growth; details on Note: Imports are recorded in the national
accounts with a negative sign, so the positive
the next side 0.73 percent shown here represents a
decrease in imports
March 29, 2013 Ed Dolan’s Econ Blog

5. Fiscal Drag Intensifies
 The government contribution to GDP
growth, as measured by government
consumption expenditure and gross
investment, has been negative
throughout most of the recovery
 Government spending growth turned
positive in Q3 2012, but negative
growth returned in Q4 both at the
federal and at the state and local
levels
 Economists refer to the negative
impact on GDP of falling government
spending as fiscal drag. Political
gridlock over spending and taxes is
expected to increase fiscal drag in
2013
March 29, 2013 Ed Dolan’s Econ Blog

6. Corporate Profits Near Record Highs
 Despite slow GDP growth, corporate
profits, both before and after taxes,
were near their record highs,
expressed as a percentage of GDP
 The ability of US corporations to
squeeze out rising profits in a weak
economy no doubt helps to explain the
recent strong performance of the stock
market
March 29, 2013 Ed Dolan’s Econ Blog

7.  For further
discussion of the
GDP data, read
this post
 Check out these
posts for more
slideshows and
analysis of US
macroeconomic
data:
 February 2013
inflation data
 February 2013
employment
situation
March 29, 2013 Ed Dolan’s Econ Blog