A Weak Growth Report Puts the Onus on Bernanke: The Ticker
If Federal Reserve Chairman Ben Bernanke required further support for the argument that more monetary stimulus may be needed, he received it in today's government report on economic growth in 2011.
The report's headline number -- annualized, inflation-adjusted growth of 2.8 percent in the fourth quarter of 2011 -- was a bit disappointing in itself. The details were even less encouraging: They strongly suggest that the positive signs of recent months -- stronger auto sales, more hiring and manufacturing activity -- won’t translate into a sustained burst of growth in 2012.
Much of the stuff manufacturers produced in the last three months of 2011 appears to be sitting on shelves rather than getting sold. Private inventories increased by $72.6 billion in the fourth quarter, compared to only $800 million in the previous three months. Final sales -- a measure of economic growth that excludes inventory shifts -- rose at an annualized, inflation-adjusted rate of 0.8 percent, down from 3.2 percent in the previous quarter.
Meanwhile, the removal of government stimulus is becoming a major drag. Total federal, state and local spending shrank by an inflation-adjusted 2.9 percent in 2011, the largest year-over-year drop since 1970. The pullback shaved 0.45 percentage point off economic growth for the year. Economists at Deutsche Bank expect further wind-down of stimulus programs to subtract as much as 2 percentage points from economic growth this year.
With politicians focused on November's presidential elections, it's highly unlikely the government will change course on stimulus. As a result, Bernanke could have his work cut out for him.
(Mark Whitehouse is a member of the Bloomberg View editorial board.)