Here’s how the Bureau of Economic Analysis characterizes today’s report that GDP increased at a 2.8% annual rate in the 4th quarter of 2011:
The increase in real GDP in the fourth quarter reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, residential fixed investment,and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in PCE and in residential fixed investment that were partly offset by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an acceleration in imports, and a larger decrease in state and local government spending.
Cuts in government spending restrained GDP by almost one full point.
Residential investment has finally stopped declining and is now making a small positive contribution to GDP for the first time in years. It might be many years, if ever, before residential investment contributes as much to GDP as it did during the boom years, but at least it is no longer a drag. Residential investment’s peak to trough decline of about 4 points in contribution to GDP is a major reason the recovery has been so sluggish — and is likely to remain sluggish.
Here’s a graph from Calculated Risk of GDP per quarter for the last few decades. As you can see, in this century we’ve never matched the growth rates that we hit regularly in the 80s and 90s.
I might write more about this later.