GDP -- 2012 Was A Slow Go

The fed. gov. has many ways to play with the GDP data. That is why I stopped forecasting
it over 35 years ago. I thought Q3 '12 was a politically inspired +3.1% and with the election
over, I am not surprised that the initial report for real GDP showed a -0.6%. Enough said on this.

It can be instructive to look at the data by sector, however. Consumption in real terms was a
punk +1.9% yr/yr reflecting continued heavy maldistribution of income away from the average
wage earner. Housing investment was strong as was to be expected, but business fixed
investment was up a scant 4.3% as slow broad economic growth kept capacity utilization at
low levels. Export sales ended up the year about where they were in late 2011, as global trade
slowed sharply. Total government spending -- federal, state and local -- declined in real terms
and damaged economic performance. Calls for sharper cuts in federal spending ahead look
even more stupid.

The Fed, which largely quit QE support for the better part of 18 months, must shoulder a goodly
amount of the blame for a very sluggish economy. I warned for months that the Fed was
gambling with the recovery with an extended liquidity squeeze after mid-2011, and the punk
result for 2012 bears out the concern.

The takeaway here for policy is pretty obvious and that is: do no more harm. That means
abandon raising taxes further, make no more than slight token adjustments to federal spending,
and keep QE in place at a strong level. It also again makes it clear that the administration and
the congress need to end the bozo circus sideshows and focus instead on how the gov. might
help a struggling economy move forward at a faster rate.
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