GDP Report Is Less Negative Than It Looks

The fourth quarter of 2012 had a lot of obstacles to overcome, but "uncertainty" doesn't appear to have been one of them. Business investment and consumer spending were the bright spots in an otherwise weak report.

The 0.1 percent decline in real gross domestic product, worse that the most pessimistic forecast, was driven by a 22.2 percent decline in defense spending, the biggest in four decades.

Businesses accumulated inventories at a slower pace in the fourth quarter than the third, which, in the world of GDP accounting, translates into a negative. Together, inventories and defense spending subtracted 2.6 percentage points from fourth-quarter growth.

Fiscal-cliff fickleness was nowhere to be found in today's first look at the fourth quarter. Business investment in equipment and software rose 12.4 percent, among the larger increases in the current expansion. Residential investment (housing) posted a solid 15.3 percent increase. And consumer spending was up 2.2 percent, driven by strong purchases of durable goods.

The strength in these three categories is generally more typical of the start of a recovery, not 3.5 years into it. The decline in GDP notwithstanding, the inspiration from the economy's cyclical leaders offers modest hope for a better 2013.

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    Caroline Baum

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