Fourth-quarter GDP figures good, not great

I’ll try to get to some details later, but fourth quarter GDP just came out and the growth rate was 2.8%, slightly below expectations but an OK pop nevertheless.

Remember, the rule of thumb here—and while it doesn’t hold quarter-to-quarter, it’s pretty reliable year-to-year—is that for every point real GDP grows about the trend rate of 2.5%, the unemployment rate should come down about a half a percent.  So a sustained growth rate close to 3% should shave one-quarter of a percentage point off of the jobless rate.

The question is sustainability.  Headwinds persist—Europe (and the UK) pose growth and financial contagion risks, oil price spikes, and fading stimulus all come to mind, and the capacity of this Congress to self-inflict economic wounds is also hanging out there (failure to extend the UI and payroll tax cut, e.g., would definitely hurt near-term growth).

One notable data signal from the report is the growth rate of final sales, which excludes inventory buildups or drawdowns, and is thus considered a cleaner measure of actual real-time demand in the economy.  Final sales grew only 0.8% last quarter, meaning inventory buildup was a big part of the topline number and suggesting that the real, underlying growth rate of the ongoing expansion is still too slow.  It’s also worth noting that the economy expanded at a relatively sloggy rate of 1.6% over the year 2011.

So, have we hit escape velocity from the clutches of the Great Recession?  I’d say no, not yet.  We’re headed in the right direction, we’ve got some mo, but growth is too slow and there’s still too much fragility and slack in the system.