Good news! The economy probably didn’t shrink last quarter, after all

February 8, 2013

Remember last week, when the government announced that the U.S. economy had shrunk at an 0.1 percent annual pace in the fourth quarter of 2012? That came as a shock to many economists, who were expecting at least modest growth.


Trade for the win!

Well, perhaps those numbers were wrong. The GDP figures, after all, were only a first-pass estimate. And new trade data released Friday suggests that the U.S. economy actually grew between October and December.

According to the Commerce Department, the U.S. trade deficit fell by 21 percent in December to just $38.6 billion, the smallest in three years. That's because the country was importing less oil and exporting more of other things — particularly refined petroleum products.

That means growth at the end of 2012 was likely stronger than we thought. When the Bureau of Economic Analysis initially calculated fourth-quarter GDP, it assumed that the U.S. trade deficit had actually widened at the end of the year, to about $557.1 billion. In reality, it had stayed mostly unchanged at about $517 billion. Since exports add to GDP and imports subtract, that means GDP was growing faster than calculated.

As a result, many analysts expect the government to show positive growth when the BEA revises its numbers next month. Capital Economics projects that the U.S. economy actually grew at a 0.2 percent annualized pace in the fourth quarter of 2012, while Macroeconomic Advisers is expecting 0.5 percent growth.

That's still quite weak. But a weakly growing economy is better than a shrinking one.

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Sarah Kliff · February 8, 2013