Why US economic growth is weaker than it looks

COMMENTARY The U.S. economy grew faster than expected in last year's fourth quarter, according to the Commerce Department. Gross domestic product expanded at a 3 percent annual rate, an upward revision from the government's previous estimate of 2.8 percent.

Or not. Most of that growth came from the economic equivalent of busy work, putting real GDP closer to 1 percent. Out of that official 3 percent increase in the last three months of 2011, 1.88 percent came from a change in business inventories. That means stuff being moved into warehouses.

In bad economic times, this can exaggerate growth. In the last quarter of 2009 and the first quarter of 2010, for instance, the Commerce Department said the economy grew 3.8 percent and 3.9 percent, respectively. Subtract inventory and those numbers shrink to -0.13 percent and -0.3 percent. Considering that the nation's unemployment rate during those periods averaged 9.8 percent, which number do you think better reflects the real state of the economy?

A closer look at the Commerce Department's numbers also raises other questions. According to the report, the price indexes for GDP (which measures prices paid by U.S. residents) fell from 2.6 percent in the third quarter to 0.9 percent in the last period. In other words, prices dropped by about 70 percent. Really? Where?

There was slightly better news in a government report issued today that said consumer spending increased 0.2 percent in January, while income was up 0.3 percent. Here's how the Wall Street Journal interpreted those numbers:

Consumers spent more because it turns out they had more cash to spend. Personal income in the third and fourth quarters were revised up so that income at the end of 2011 was almost $100 billion higher than first thought. The new-found money went both to increased spending and higher savings.

I'm not sure where they got this higher savings number. According to the feds' Bureau of Economic Analysis:

Personal saving -- [disposable personal income] less personal outlays -- was $540.6 billion in January, compared with $552.1 billion in December. The personal saving rate -- personal saving as a percentage of disposable income -- was 4.6 percent in January, compared with 4.7 percent in December.

Now, admittedly, I went to public schools, but I'm still pretty sure 540 is less than 552 and 4.6 is less than 4.7, That indicates savings shrank, not rose as the WSJ contends. But what do I know?

[zamorafulham]

This article falls below standards required of accurate reporting.
Prices did not fall 70%. They rose by 0.9%.
Inventories are not stuff being moved, they are goods produced. They are called forth when we have bought what is on offer.
That personal incomes were higher in Q3 and Q4 than first reported, is surely "better news", and says nothing about the saving rate in january (Q1).
The BEA would have no interest in misinforming the public. So why does CBS, with this snarky approach to economic statistics?

[rwsmith29456]

Any growth is good growth.

[js2212]

Wait a second. This article CANNOT be true. I have learned from several commentors on this site that we are doing better than ever and are virtually out of the woods full steam ahead, all thanks to the incredibly effective leadership of Obama and the Democrats. So I guess I can ignore this article.

[bleachigo]

Your right! The democrats have fixed everything by throwing money at it, the economy couldn't possibly be bad anymore, Obama saved us all. That's why real unemployment is still at over 10%

[sjc_1]

The real sick irony to your comments is the Republicans crashed the economy with their sub prime ignorance.