Four Key Points on the GDP Data

By at 30 January, 2015, 3:12 pm

by Raymond J. Keating- 

In his State of the Union address, President Obama painted a rosy portrait of the U.S. economy. According to the President, the U.S. economy experienced a “breakthrough year” in 2014.

Well, with fourth quarter GDP data out on January 30, it turns out that 2014 was just another under-performing year in terms of economic growth.

Consider the following four key points emerging from this most recent look at real U.S. economic growth:

1)   Real GDP growth registered only 2.4 percent in 2014. That’s exactly the average growth rate the U.S. has experienced throughout this dismal recovery. And after two solid quarters of topline growth (4.6 percent in the second quarter and 5.0 percent in the third quarter), the fourth quarter real annualized growth rate slowed markedly to 2.6 percent. For comparison purposes, real GDP growth post-World War II (actually since 1950) has averaged 3.2 percent. And before the notable slowdown in growth since 2000, growth averaged 3.7 percent. Finally, during recovery/expansion periods, real GDP growth has averaged in the neighborhood of 4.5 percent. Rather than a breakthrough year, 2014 was another under-performing year. Clearly, the U.S. should be growing much, much faster.

2)  The consumer carried the day in the fourth quarter, but private investment slowed. Real personal consumption expenditures grew by 4.3 percent. Unfortunately, real private fixed investment slowed dramatically in the fourth quarter, inching ahead by only 2.3 percent. Nonresidential investment was particularly woeful, with a growth rate of only 1.9 percent, including a decline of 1.9 percent in equipment investment. In terms of the broadest investment categories, only investment in intellectual property products showed solid growth (7.1 percent) in the fourth quarter. Indeed, a big chunk of the growth in gross private domestic investment came from inventories, rather than from sustainable investment. The problem throughout this recovery has been a lack of strong private-sector investment, and that was seen once again in the fourth quarter data.

3)   Real export growth slowed for the second consecutive quarter.  From 11.1 percent growth in the second quarter to 4.5 percent in the third and to 2.8 percent in the fourth. For all of 2014, exports grew by only 3.1 percent. Slow growth among key trading partners and a lack of U.S. leadership on trade throughout much of the Obama administration are troubling for U.S. growth.

4)   The lost years continue for the U.S. economy. Make no mistake, 2014 was far from a standout year for the U.S. economy. Indeed, the U.S. has not seen a truly solid year of economic growth since 2004 (3.8 percent) and 2005 (3.3 percent). And it must be noted that those two are the only quality growth years over the past fourteen years. That’s a pathetic economic record. Indeed, it’s a lost near-decade-and-a-half for the U.S. economy. And until we reverse course on the policy front – moving to an agenda of substantial, permanent tax and regulatory relief, reining in the size of government, free trade and sound money – our lost years will continue.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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