Economic Analysis: Fourth Quarter Real GDP Revised Down

By SBE Council at 23 February, 2023, 2:57 pm

by Raymond J. Keating –

Real economic growth for the fourth quarter 2022 was revised down in the U.S. Bureau of Economic Analysis most recent report.

Revisions: GDP down, Inflation Up

Real GDP growth for the fourth quarter (on a seasonally adjusted annualized basis) was revised down from 2.9 percent to 2.7 percent. At the same time, a measure of inflation was revised up, with the PCE price index revised from 3.2 percent to 3.7 percent.

Meanwhile, real GDP growth for all of 2022 wasn’t revised, remaining at a sluggish 2.1 percent.

It’s striking how poor economic growth was in 2022. Of course, we had the dramatic decline and recession in 2020 due to the pandemic, with the change in real GDP coming in at -2.8 percent. And then we saw some revitalization – a quasi-snapback – in 2021, with real GDP growth registering 5.9 percent.

That should have positioned us for strong growth in 2022, especially as supply chains were recovering. Instead, though, we saw the economy shrink during the first two quarters of 2022 – that is, -1.6 percent in the first quarter and -0.6 percent in the second quarter – which effectively was another recession after the one we experienced in 2020.

That was followed by average growth (+3.2 percent) in the third quarter of 2022, and now this latest estimate of a below-average 2.7 percent in the fourth quarter. Over the past seven decades, real annual GDP growth in the U.S. has averaged 3.1 percent.

Policy Matters: Pro-growth policies needed

All of this should prod our elected officials to get focused on policymaking that actually will help rather than hinder economic growth. The policy focus should be on policies that enhance the incentives and freedom to startup, build, operate, and invest in businesses, resulting, in part, in enhanced productivity that helps drive both profits and worker income higher. For example:

● Reducing personal income, corporate income and capital gains taxes will boost incentives and resources available for entrepreneurship and investment. A permanent expensing option for all capital expenditures by business will drive innovation and productivity. Making permanent the small business deduction and other key measures included in the Tax Cuts and Jobs Act would produce certainty and growth.

● Regulatory relief and modernization – that is, rolling back costly, nonsensical regulations and streamlining the regulatory process  – likewise will reduce the costs of and increase incentives for starting up, expanding, running and investing in businesses.

● Free trade will open new opportunities for entrepreneurs, businesses and workers, as well as expanding choices and reducing costs for consumers.

● And immigration reforms that welcome entrepreneurs and workers will help meet shortfalls on both fronts, and further fuel growth.

Get policymaking right, and economic, income and employment growth will accelerate. Unfortunately, policymaking has been pointed in an anti-growth and/or uncertain direction for more than 15 years now – and the U.S. has paid the price in lost output and income.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.