The U.S. economy grew at an annualized rate of 2.8 percent in the last three months of 2011, the Commerce Department announced in an advance estimate Friday. The new figures help quell lingering fears of a double-dip recession, but economists say there remains cause for concern.
“At first glance, it looks good, because it’s the 10th straight quarter of economic growth,” Chad Stone, chief economist at the Center on Budget and Policy Priorities, told TPM. “But there’s an awful lot to be concerned about when you dig into the numbers.”
Stone noted that a large part of the gains came from businesses accumulating inventory — but much of it wasn’t sold. “So the excess capacity gap is not shrinking,” he said. This, he argued, reflects that the trajectory of aggregate demand — the more important indicator of economic strength — remains problematic.
It was the best quarter of the year, with some important improvements, but likely still not yet enough to erase the losses from the Great Recession, economists say. Gross domestic product grew at 1.8 percent in the third quarter.
The crux of the development was consumer spending and business inventory.
“The big story is inventories,” Dean Baker, co-director of the Center For Economic and Policy Research, told TPM. “They added almost 2 percentage points to growth in the quarter — they subtracted 1.4 percentage point in the [previous] quarter.”
Investment in equipment and software, Baker noted, is approaching pre-recession levels, with its share at 7.6, as opposed to 8.0 percent before the downturn.
But, Stone added, “Final sales grew very slowly in the final quarter, by just 0.8 percent. They were up a lot in the third quarter.”
The two economists also pointed out that shrinking government spending was a drag on the economy, in part because government jobs were lost on federal, state and local levels.
Stone continued that the situation in Europe could still have a major impact on the U.S. economy; meanwhile, he said at home it’s critical that Congress extend the payroll tax cut and unemployment insurance.
“If that doesn’t happen that would be a hit to the economy for sure,” he said.
Sahil Kapur is a congressional reporter for TPM. He previously covered politics and public policy for numerous publications including The Guardian and The Huffington Post. He can be reached at sahil [at] talkingpointsmemo.com.