No matter how you spin it, a drop to 1% from 4% is something more than trivial.
The big question now is whether the advance estimate of 1.1% growth for the economy in the fourth quarter portends a recession or merely a slowdown in 2006. Some pundits continue to think that neither is coming. Then again, weren’t we warned recently of darker days ahead via the inverted yield curves?
In any case, there are the numbers to digest; taken at face value, they paint a troubling profile. GDP rose at the slowest pace in three years in the last three months of 2005, the Bureau of Economic Analysis reports. Digging deeper, the stats only get worse, starting with the massive 17.5% fall in durable goods purchases in the fourth quarter–the biggest decline in 18 years. And while consumer purchases kept rising during October through December, they did so at a slim 1.1% pace, or the slowest rate of ascent since the last recession in the second quarter of 2001.
To say that economists were surprised by the GDP report is something of an understatement. The consensus forecast called for a 2.8% rise. The fact that the actual number came in at only 1.1% tells of the vast disconnect between expectations and reality.
The question is whether the advance GDP report constitutes reality, a line of inquiry that’s found much attention today in the wake of the economic news. Knowing full well that each and every GDP report is revised, some are holding out the hope that today’s 1.1% fourth-quarter rise will evolve into something more encouraging when the government dispenses the so-called preliminary report and then the final one.