Economy Grows at Slowest Pace in 3 Years

January 27, 2006

According to the latest USA Today/CNN/Gallup poll, only 39% of Americans approve of the president’s handling of the economy. In some polls, it’s even lower. This isn’t likely to make things any better.

The economy grew at only a 1.1 percent annual rate in the fourth quarter of last year, the slowest pace in three years, amid belt-tightening by consumers facing spiraling energy costs. […]

The 1.1 percent growth rate in the fourth quarter marked a considerable loss of momentum from the third quarter’s brisk 4.1 percent pace. The fourth-quarter’s figure – lower than the 2.8 percent pace economists were forecasting – was the weakest performance since the final quarter of 2002, when the economy expanded at just a 0.2 percent rate.

The weakness in the final quarter of last year reflected consumers pulling back, cuts in government spending and businesses being more restrained in their capital spending.

The news wasn’t all bad — new-home sales continued to grow — but the report on anemic growth comes the same day as new data showing the income gap between rich and poor getting worse.

Don’t worry, I’m sure the president has a plan. It probably includes cutting taxes for millionaires. After all, as he’s told us before, the tax cuts are a great way to address slow economic growth. And keep fast economic growth going. And deal with high deficits and high surpluses. And address high and low unemployment. And cure the common cold. And…

If memory serves me right the government has had a recent habit of releasing these economic numbers and then going back a few months later and revising them (usually downward). Is it possible the economt grew ZERO in the 4th quarter? About the time the revised numbers come out this could be a good campaign issue for Dems. “We gave them the majority of government for better than 4 years and the Republican economic plan has managed to stagnate every aspect of the economy while launching the debt into teh stratusphere.”

I’m sure the SOTU will not be revised to include 1.1% growth in Q4 2005. Maybe It’s the economy, stupid was the truest phrase ever uttered in politics.

  • MNProgressive, you may be right. So I’ve been thinking…

    Government spending is actually an important source of economic growth. And right now, Congress is spending money like an crack-addicted whore with a stolen credit card–so why isn’t the economy doing better? My shrewd guess is that the Bush states are getting all of the government business (and thus growth) while more progressive states are getting neglected. Net US economic growth is minimal, but some states are raking it in and doing fine. Which might explain why some states are still so loyal to Bush…after all, it’s not like they’re suffering.

    CB, any chance you could post up an percentage-economic-growth-by-state chart? If I’m right, the southeastern US and Red states will be showing more growth and more federal investment than Blue states.

  • Actually, they will probably be revised up this time, because the business investmetn numbers look kind of weak. Mostly this is a one time weak number, although I do believe that the economy will be slowing this year, gradually at first, but persistently. The fourth quarter number is affected by a few one offs – defense spending dropped, pulling off about a point of growth, and imports exploded, likely because of katrina induced effects, while exports lagged. The only really important part of this is the consumer slowdown, which was very noticeable, and is the main driver (at 70% of GDP) of the economy. But the slowdown in consumer spending was all in the durables category, which is because auto spending tanked in october and november before rising strongly in December. The overall consumer spending number could be revised up a bit too. But the outlook for consumers is pretty grim. Job gains are still just outpacing labor force growth, and wage gains suck. With the housing market slowing, home equity extraction is already falling, and spending was propped to the tune of $200 billion last year from this, equating to almost one third of the overall growth in GDP last year. Meanwhile, debt loads are huge, and with interest rates rising, debt burdens eat up more of disposbable income. Energy prices near records means more gas money into fuel tanks. But the worst will come when all the adustable rate mortgage loans start to reset higher, especially the large share that are interest only. When principal comes due, and people find that there home is no longer appreciating, and they cant get the refi they need, and cant switch to a fixed rate because they cant make the payments, then the fun really starts. It will be even more fun for those who took out negative amortization loans, 70% who are paying the minimum, which doesnt even cover interest payments. So, their loan balance will increase, on a house which could very easily be worth less. Then when payments go up, guess what happens? Yes, its called default and foreclosure, but this time, noone in their right mind is going to want to gobble up that house when prices are in a slow decline, and not a bubble induced 15% annual increase trend. So, get ready, cuz the shit is going to hit the fan this year.

  • Because those millionaires LOVE to trickle that money down to the rest of us.

    It’s also worthwhile to point out, since this is a figure that’s also very important to those millionaires, that the Dow Jones Industrials is STILL around only 11,000.

    Mr Flibble, I would speculate that the red states haven’t seen any better growth in general than anyone else. It would follow from the premise of Thomas Frank’s book, What’s The Matter With Kansas (which, admittedly, I haven’t read,) which explores the question of why so many people (Republican voters) vote against their economic interest.

  • Rian,
    I can’t speak for Kansas–after all, we certainly can’t rule out the ideological infrastructure as a reason why the GOP is so successful convincing people to vote against their own interests.

    But I’d heard somewhere else a while back that federal revenue is going disproportionately to Red states, leading me to think that the economies of Bush’s base are being propped up by government spending. Ideology is clearly important, but a little cash probably doesn’t hurt the loyalty neither.

  • Mr Flibble, I think that federal revenue has always gone to the red states. I don’t know any numbers but government taxation and funding is basically a wealth redistribution scheme (as it should be!) And most red states take in more federal funds than they shell out in tax dollars, simply because they are the poorest states. They probably also take a lot of transportation dollars since they have many more miles of highway per person than most blue states. I think that’s been the case for decades, that the blue states have been paying out taxes that end up in red states. Whether that trend has gotten worse, is another question.

    And, I could be completely wrong. I’m just guessing that’s how it works.

  • And, I could be completely wrong. I’m just guessing that’s how it works.

    Part of it also relates to ear-marking and the disproportionate representation of the central and northwest Red states. They have more representatives in congress (especially the Senate) per capita than the more heavily populated blue states.

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