Return of the Bubble Decade's Growth Engines
Wednesday, January 30, 2013
|Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).|
The first cut at fourth quarter 2012 U.S. growth estimates issued by the Commerce Departent this morning (two revisions will be issued) shows worrisomely that the American economy is once again becoming increasingly dominated by personal consumption and housing – the toxic combination whose expansion inflated the last decade’s disastrous bubble.
Measured both quarter-to-quarter and year-on-year, these two sectors comprised a share of total real GDP that approached bubble-decade levels. They also played an outsized role in generating growth between 2011 and 2012, and between the third and fourth quarters of last year.
More encouragingly, business investment returned as a growth engine in the fourth quarter, after serving as a drag in the third. But it generated less of total growth in 2011 than in 2012.
In addition, despite President Obama’s belief that boosting U.S. exports
can help power the recovery, trade was a contractionary force behind the 0.1 percent annualized decline registered for fourth quarter GDP. And whereas trade contributed fractionally to 2011’s 1.8 percent real U.S. growth, it made no net contribution to 2012’s 2.2 percent expansion. (All growth figures are presented on a seasonally adjusted, annualized basis unless otherwise specified.)
The new GDP figures show that the combined personal consumption and housing share of the economy grew from 73.18 percent to 73.69 percent between the third and fourth quarters of last year. Between full-year 2011 and full-year 2012, their growth was slower – from 73.36 percent of real GDP to 73.39 percent.
These levels are not far off those reached by these two problematic sectors at the outset of the last recession at the end of 2007: 73.81 percent. The modesty of this improvement strongly indicates that the nation has made little progress towards President Obama’s worthy goal of creating “an economy built to last” – i.e., one based mainly on producing and earning, rather than on spending and borrowing.
Personal consumption and housing also played major, growing roles in preventing the fourth quarter’s contraction from being worse. They collectively added 1.88 percentage points to real GDP growth. Between the second and third quarters, they fueled only 46.13 percent of inflation-adjusted growth.
Between 2011 and 2012, the personal consumption-plus-housing share of growth fell – from 97.78 percent to 73.18 percent. But it still remained strong. (Contribution to growth figures can exceed 100 percent because some sectors sometimes contract.)
The business investment share of real GDP increased from 10.81 percent in the third quarter to 11.04 percent in the fourth, and from 10.36 percent in 2011 to 10.92 percent in 2012. And whereas such spending undermined third quarter 2012 growth by 6.13 percent, it, too, curbed the fourth quarter decline, generated 0.83 percentage points of expansion.
From 2011 to 2012, however, business investment’s share of real growth declined from 44.44 percent to 34.09 percent.
By increasing from $395.2 billion in the third quarter to $404 billion in the fourth, the real trade deficit subtracted a quarter of a percentage point from year-end GDP change, further weakening the economy. In the third quarter, it contributed three quarters of a percentage point – nearly 25 percent of that quarter’s total growth.
In 2011, trade flows fueled 3.89 percent of total real growth. In 2012, their net contribution was zero. As a result, since the current recovery’s technical beginning in the second quarter of 2009, the increase of the real U.S. trade deficit from $322.8 billion on an annualized basis to $404 billion has reduced total economic growth by 8.58 percent, undermining an already historically weak performance.
Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).