GDP could mask a solid recovery

Ylan Q. Mui / The Washington Post /


Published Jan 30, 2013 at 04:00AM / Updated Nov 19, 2013 at 12:31AM

WASHINGTON — Don’t be fooled by economists’ predictions of slower economic growth during the fourth quarter. The forecasts mask what many believe is a pretty solid recovery.

The government will release its first estimate of the nation’s gross domestic product this morning, and the consensus prediction is for a paltry growth rate of 1.1 percent. Some are expecting growth to slow to as little as 0.4 percent — barely above stall speed.

But dig a little deeper, and the picture is not so grim. The third quarter was inflated by atypical increases in defense spending and business inventories that pushed the growth rate up to 3.1 percent.

Defense spending is actually on a long downward spiral. And the fallback in business inventories to more normal levels alone will subtract 1.8 percent from the GDP, according to Ben Herzon, an economist at Macroeconomic Advisers. Take out those two factors — and some funky math courtesy of Hurricane Sandy — and the economy doesn’t look so bad.

“It’s not an indication of things to come in the near-term,” Herzon said.

Business investment in equipment and software is expected to pick up after declining during the third quarter. Consumers probably spent more as households began to feel more secure in their finances. Though wages have remained largely stagnant, many families may feel wealthier thanks to gains in the stock market and housing prices. And housing itself is predicted to continue contributing to GDP after years of dragging it down.

“The headline is not obviously going to be as good ... but the mix of growth is actually a little bit better,” said Richard Moody, chief economist at Regions Financial Corp.