The headline at WaPo was upbeat: “U.S. economy in fourth quarter 2011 grew at fastest pace in 1.5 years.” But the new economic growth data released by the Commerce Department are decidedly mixed, and more importantly, assessments of what happens next are all over the map among those venturing a prediction.
Yes, the 2.8% GDP growth level for the quarter was the highest since the spring of 2010. But total GDP growth for 2011 was down to 1.7% from 3% in 2010. More importantly, with unemployment still so high, the economy is not even close to the growth levels that would represent a broad-based recovery. As Matt Yglesias noted, real disposable personal income increased only 0.8%; non-residential construction continued to decline; and once again, cuts in government spending continued to operate as a drag on growth (state and local government expenditures dropped even more than in the third quarter, reflecting the final expiration of federal stimulus aid, and federal defense cuts took their first real bite out of public sector spending).
As always, the reaction to economic news is as important to the economy as the news itself, so close monitoring of the attitudes of economists and the markets is a very good idea at present. Sometimes an understanding of psychology is as helpful as any advanced degree in economics.