One of the great things about fourth quarter gross domestic product (GDP) statistics – even if they’re going to be revised at least twice more – is that they allow us to see how the economy performed over a full year. And as usual, some of the most important insights can be gleaned from some of the data that are most widely ignored.
This morning, I detailed the GDP-related news that trade flows were a total loser for the U.S. economy during the last three months of last year, the full year (for three of its four quarters), and for the entire economic recovery. When was the last time you saw or heard that in an article or speech or news program about the new trade deals President Obama is pursuing? And in about a week, I’ll be able to specify the growth hit from that portion of trade flows that are strongly influenced by trade deals – which will be much bigger, since this number strips out the revolutionary improvement we’ve seen in U.S. energy trade.
Consistent with the trade deficit surge, however, the new GDP numbers also told us that the nation is actually slightly further from achieving the president’s vitally important goal of creating “an economy built to last” than at the start of the last recession. As Mr. Obama has warned, if we’re to restore real economic health and prevent another financial catastrophe, it’s crucial to reorient the national business model away from borrowing and spending, and toward saving and producing.
My favorite way to measure steps forward or backward is to examine the share of the economy made up of personal consumption and housing combined. They after all comprised the toxic combination that poisoned growth during the bubble decade. Thanks to the new GDP numbers, we know that as a nation we’re still hooked on borrowing and spending. In 2007, the year the recession began, personal consumption and housing represented 71.91 percent of gross domestic product, adjusted for inflation. Last year, that number fell to 71.25 percent, which looks like (some) progress.
But if you look at the quarterly numbers, the story’s a little worse. The recession began in December, 2007 – and then, the personal consumption-housing share of real GDP was 71.16 percent. The new figures show that the fourth quarter 2014 figure was 71.23 percent. True, that’s not much worse. But it’s also been seven full years since we began suffering the consequences of our profligate ways.
Moreover, even though the quality of America’s growth remains dangerously low, the growth itself has been nothing special. In fact, last year’s inflation-adjusted 2.40 percent, while better than 2013’s 2.20 percent, was still below the recovery peak of 2.50 percent hit in 2010. So the economy is clearly flunking the test of returning to acceptable growth rates while simultaneously laying a more solid foundation.
Finally, the new GDP figures – plus the previous set – continue challenging the widespread belief that the U.S. economy’s financialization has helped addict America to bubbles by undermining business’ interest in building new factories and buying new machinery, and making other productive investments, in favor of fast-buck schemes. As I wrote for the Marketwatch.com website, the GDP numbers show that pretty much the opposite has happened. Since financialization took off (as it unmistakably has), productive business spending has become a more important engine of overall growth, not a less important one.
This pattern held into the third quarter (the first data available since my article was published in late-September), with business spending generating 22 percent of inflation-adjusted growth. That share actually is a bit smaller than the 28 percent that had been holding so far during the current recovery. But it’s still more than twice the level of the pre-financialization period that preceded the 1980s.
In the fourth quarter, business investment’s growth contribution fell back into that pre-financialization range (to 9.23 percent). But for all of 2014, the figure was above the recovery norm – clocking in at 31.25 percent.
All the same, despite business investment’s health, the new GDP figures overall make for a description of American growth’s quality that sounds like college students’ description of campus food (back in my day): “It’s lousy and there’s not enough of it.”