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A Shrinking GDP


4th quarter GDP shrunk by .1%. Are we heading toward another recession? Have we expanded our way out of the last one? A double dip recession can occur when the economy starts to shrink after only a quarter or two of growth. With two years of growth, even slow growth, behind us, a recession would be a new recession, not a double dip.

That said, defense outlays dropped by a 22% rate in Q4, and given how large this spending usually is, it accounted for all of the dip we just saw. Jobs showed an increase of 192,000 according to my friends at ADP, the payroll processor. And the market (measured by the S&P 500) shrugged off the news gaining nearly a percent for the week.

  • William @ Drop Dead Money February 6, 2013, 12:23 pm

    Ahhh… all is not what it seems. If you look at the components of the GDP, you’ll notice that the third quarter’s “good news” was in large part a reflection of a very unusual spurt of defense spending. And in Q4, there was a huge dip in defense spending. If you average the two quarters’ defense component out, both Q3 and Q4 showed small growth.

    Did the election have anything to do with such an unusual massaging of the numbers? We can only wonder…

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