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The Economy Just Shrank, But This Is the Best Negative GDP Report You Will Ever Read

Derek Thompson

What kind of economy might we have if Washington weren't dead-set on building an obstacle course for the recovery?

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The economy surprisingly shrank by the smallest of margins -- a tenth of a percent -- in the last three months of 2012, as volatile defense spending took a tremendous 22 percent hit and companies pulled back on inventories.

As the president might say, let me be clear: This is bad economic report. The economy is still weak, unemployment is still high, consumer and corporate nerves are still frayed, and the economy just. Stopped. Growing.

On the bright side, this is probably the best bad economic report you will ever, ever read. And here's why. Underneath the headline figure of negative-0.1 percent, the news about the private sector is sturdy, even -- dare I say it? -- promising.

Compared to the previous three months, personal consumption accelerated last quarter. Personal consumption of durable goods? That's growing faster, too. Services? Growing faster. Equipment and software investment? Growing faster. And the all-important category of residential spending (houses)? Clearly accelerating.

You probably want to see that news in graphs for yourself, so here are two. First up, a look at percent-growth of three important categories of the economy: Personal consumption, which is a super-category, durable goods (which is one of its key components), and residential investment, which is clutch if we're going to have anything approximating a housing recovery. As you can see, the fourth quarter of 2012 doesn't exactly look like a nightmare ...

The Bureau of Economic Analysis weights these components to show how much they're actually contributing to total growth. Since personal consumption is a super-category, I've replaced it with another key sub-category: nonresidential investment (which is like new factories and offices, as opposed to new houses) Here's that picture.

Slightly different information, same bottom line: In the private sector, the last quarter of 2012 wasn't a disaster. In key categories, it was arguably our strongest in two years.

Here's where you say: Derek, stop it, you're comparing weak growth in the last quarter to weak-weak growth in the previous two years and trying to pass it off like it's super-great news, but it just means we're bouncing higher than a dropped dead cat. And here's where I say you're right. I think of our private sector like a recently crippled fellow in physical training. But, at every stage of his recovery, we insist on throwing pointless obstacles in front of him. Oh, you're standing now? We're going to kick out the crutch of state aid. Walking, huh? Here's a debt ceiling showdown. And, just because whatever, here's another. Nice jogging effort! Now please leap over these several sequester and budget crisis hurdles.

It makes you wonder: What kind of economy might we have if Washington weren't dead-set on building an obstacle course for the recovery?

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