In Q4 2011 US GDP rose by a respectable 2.8%q/q, annualised. This compares with growth of 1.8%q/q in Q3 2011. The growth performance in Q4 2011 was slightly lower than market expectations, which was for a reading of 3.1%q/q. For 2011 as a whole the US grew by 1.7%, down from 3.0% in 2010.
The growth in Q4 2011 was the tenth consecutive quarterly increase in US GDP, and the highest growth rate since the second quarter of 2010.
The increase in real GDP during Q4 2011 reflected mainly positive contributions from private inventory investment (which added 1.94 percentage point to the quarterly change in GDP), personal consumption expenditures (which added 1.45 percentage points), exports (added 0.64 percentage points), and residential fixed investment (added 0.23 percentage points).
These gains were offset by a significant contraction in government activity (mainly defence activity), which deducted 0.93 percentage points from the quarterly change in GDP (defence, on its own, subtracted 0.73 percentage points). Government activity is expected to continue to decline in 2012, reflecting the need for fiscal austerity. Lastly, imports, which are a subtraction in the calculation of GDP, increased in the quarter, resulting in GDP growing 0.75 percentage points lower.
Real final sales of domestic product - GDP less change in private inventories - increased by a very disappointing and concerning 0.8%q/q in the fourth quarter, after increasing by an impressive 3.2%q/q in Q3 2011.
There is currently slightly less nervousness about the outlook for the US economy, especially as a result of the reduction in jobless claims, rise in non-farm payrolls, improvement in consumer confidence as well as a little more fixed investment activity. Housing activity also made a very welcome contribution to GDP growth in Q3 2011, but remains extremely depressed overall.
Employment growth is absolutely crucial to the sustainability of the current recovery. Hence we are developing an US Employment Monitor, which we will release next week and update on a very regular basis.
It is also crucial to highlight that US GDP growth is expected to slow noticeably in Q1 2012 and Q2 2012, partly as a result of the Q4 2011 inventory growth reversing, as well as ongoing fiscal austerity. Nevertheless, we still think that the US will avoid a return to recession conditions and that growth could become a little more certain in the second half of 2012.
Longer-term, given the structural economic difficulties in the US (housing market overhang, loss of production capacity to emerging markets, huge fiscal constraints), it appears likely that the US economic recovery will remain relatively muted for a considerable period and that employment will take a number of years to fully recover from the great recession.
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