US GDP fell by 0.1 percent in Q4 2012, according to the advance estimate from the BEA. Inventories, exports, and defense spending accounted for most of the decrease

1. Data for the Classroom from
Ed Dolan’s Econ Blog
http://dolanecon.blogspot.com/
US GDP Shrinks in Q4.
How to Interpret
the Bad News?
Posted Jan 30, 2012
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2. Q4 GDP Shows Unexpected Decrease
 The advance estimate of US real
GDP growth for Q4 2012 decreasing
at a 0.1 percent annual rate
 The advance estimate is subject to
later revisions averaging plus or
minus 1.3 percentage points
 If confirmed, the quarterly decrease
would be the first since 2009
Posted Jan. 30, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

3. Expansion Interrupted
 According to standard business cycle
terminology, the recession phase of the
business cycle is the downward
movement of GDP from its previous peak
 The recovery phase is the upward
movement from the trough (low point) of
the recession and continues until GDP
again reaches its previous peak.
 Once GDP moves above its previous
peak, the expansion phase begins.
 Q4 2012 GDP dropped slightly from Q3
but at this point it seems more likely this is
an interruption of the expansion than the
start of a new recession
Posted Jan. 30, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

4. Sources of the Q4 Decrease in GDP
Table shows the contribution
 Consumption contributed a strong 1.52 of each sector to the -0.1%
percentage points to Q3 growth total GDP change in Q4 2012
 Investment contributed -0.08 percentage
points. Fixed investment was strong but
more than offset by falling nonfarm
inventories
 Exports contributed -0.81 percentage
points. If confirmed, this will be the first
decrease in exports since Q1 2009.
 The government sector also made a
negative contribution to growth; details on
the next side Note: Imports are recorded in the national
accounts with a negative sign, so the positive
0.11 percent shown here represents a
decrease in imports
Posted Jan. 30, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

5. Shrinking Government
 The government contribution to
GDP growth has been negative
throughout most of the recovery
 In earlier quarters, state and local
governments shrank most rapidly
 Recently, state and local
government has stabilized, but
federal spending has begun to
decrease
 The sharp increase in Q3 2012 and
subsequent decrease in Q4 are
largely due to unusual movements
in federal defense spending
Posted Jan. 30, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

6. Shrinking Government
 The government contribution to
GDP growth has been negative
throughout most of the recovery
 In earlier quarters, state and local
governments shrank most rapidly
 Recently, state and local
government has stabilized, but
federal spending has begun to
decrease
 The sharp increase in Q3 2012 and
subsequent decrease in Q4 are
largely due to unusual movements
in federal defense spending
Posted Jan. 30, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com