Sub-3% GDP Growth: A Lost Decade For The US Economy by Gary D. Halbert

by Gary D. Halbert

February 2, 2016


  1. 4Q GDP Up Only 0.7% Economy Started and Ended Weak
  2. A Controversy Over GDP Growth Rate For All of 2015
  3. Orders For Durable Goods Plunged Lower in December
  4. Sub-3% GDP Growth: A Lost Decade For the US Economy
  5. What We Could Do to Stimulate the Economy Now


Whew – January is finally over! Up until the last week or so, the downside carnage in January was the worst New Year’s stock market start in history. Thanks to last week’s rebound, it was only the worst New Year’s start since January of 2009 when the Great Recession was unfolding. Still, it was a hair-raising month for stock investors. And no one knows if the damage is over.

There are many theories as to why equity markets around the world suddenly plummeted in January. I have written about several of them in the last couple of weeks. Most market commentators, including yours truly, have pointed to concerns about China’s economy, the collapse in oil/commodity prices, the strong US dollar, Fed interest rate hikes, etc., etc. as the likely causes for the January implosion.

Rather than continue that discussion today, I want to point out a milestone that was reached with the end of 2015 and last Friday’s 4Q GDP report – and this milestone was not a good one. With 2015 behind us, it has been a decade since we have seen 3% yearly growth in the economy. The last year we had 3% growth was 2005. Call it America’s “Lost Decade.”

Near the end of today’s letter, I will make some suggestions on how we could stimulate our now moribund economy – starting with a significant corporate income tax cut for businesses large and small. Republicans complain that they can’t override President Obama’s veto, so they do nothing. Yet with the economy now growing by less than 1%, I think the GOP would be surprised at how much support they could get from Democrats, especially in an election year.

Before we get to that discussion, let’s take a look at last Friday’s GDP report for the 4Q. The advance report came in lower than expected with growth of only 0.7% for the final three months of last year. The sharply lower 4Q reading suggests yet another year of weak economic growth. And there is now a controversy over how much the economy expanded last year, which I will explain as we go along.

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There’s a lot to cover in today’s E-Letter, so let’s get started.

4Q GDP Up Only 0.7% – Economy Started and Ended Weak

Let’s start today with the news from last Friday’s advance 4Q GDP report from the Commerce Department. The headline number was growth of only 0.7% (annual rate) in the final three months of last year. That number was weaker than the pre-report consensus of 0.9%, so it was yet another disappointment.

As you can see below, in 2015 US GDP rose by a very anemic 0.6% in the 1Q, due in large part to a very severe winter; by a strong 3.9% in the 2Q, largely attributed to “catch-up” from the 1Q; then 2.0% in the 3Q; and finally 0.7% in the 4Q. The economy started the year very weak, rebounded sharply in the 2Q and then ended the year almost as weak as it started.

GDP Growth

The Commerce Department attributed the weak 4Q to a deceleration in consumer spending, a  downturn in non-residential fixed investment, weaker exports and lower state and local government spending. Consumers continue to pocket most of their gasoline cost windfall to pay off debt and/or rebuild savings, rather than buying new goods and services.

The bottom line is that last Friday’s GDP report virtually assures a slow economic start for 2016 and raised the odds for a recession later this year. This 4Q GDP estimate will be revised two more times, near the end of this month and near the end of March. Early estimates suggest that the advance report number of 0.7% will be revised even lower later this month.

On the bright side (if you can call it that), the report sparked new discussion that the Fed will now be reluctant to move forward with the four interest rate hikes it has planned to implement this year starting in March. I’ll have more to say about that just ahead.

A Controversy Over GDP Growth Rate For All of 2015

In the Commerce Department’s GDP report last Friday, the official announcement stated that US economic growth for all of 2015 was 2.4%, the exact same as in 2014. That number immediately seemed high to me. Let’s go back to the quarterly GDP numbers for 2015: 0.6% for the 1Q, 3.9% for the 2Q, 2.0% for the 3Q and 0.7% for the 4Q.

If you add those four quarterly numbers up, you get 7.2%; if you divide that number by four, you get 1.8%, not 2.4%. So what gives, I wondered.

My immediate reaction was that the Commerce Department must have gone back and revised upward its GDP estimates for the 1Q, 2Q or 3Q. So I went to the Commerce Department’s Bureau of Economic Analysis (BEA) website to see if there were any revisions. There were none.

The quarterly GDP numbers for 2015 were exactly the same: 0.6%, 3.9%, 2.0% and the 0.7% advance estimate for the 4Q. Add ‘em up, divide by 4, and you get growth of 1.8%. So how did they come up with growth of 2.4% for last year? As of now, no one knows. Take a look.

GDP Growth

On the left-hand side of the table, you can see that the BEA reported overall GDP growth of 1.5% in 2013, 2.4% growth in 2014 and 2015 growth of 2.4%. But if you go to the right-hand side of the chart, you see the official quarterly growth rates for 2015. Again, if you add them up and divide by four, you get 2015 growth of only 1.8%, not 2.4%.

I have to admit that at this point, I have no explanation. I have been watching these quarterly GDP reports for over 35 years, and I have never seen a discrepancy such as this.

While it is true that the 4Q advance GDP estimate will be revised two more times – at the end of February and at the end of March – I have no idea how the BEA will rectify this discrepancy. Maybe they will admit that it was just an error. I’ll keep you posted.

Before we move on to our main discussion today, I want to point out one other economic report from last week that was

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