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Economics for your Classroom from Ed Dolan’s Econ Blog As US Growth Slows in Q4, Inflation Turns Negative Posted January 30, 2015

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Economics for your Classroom from Ed Dolan’s Econ Blog As US Growth Slows in Q4, Inflation Turns Negative Posted January 30, 2015 Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.


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January 30, 2015 Ed Dolan’s Econ Blog US GDP Growth Slows in Q4 2014 The advance estimate from the Bureau of Economic showed that US real GDP grew at an annual rate of 2.6 percent in Q4 2014 That was barely half of the 5 percent rate for Q3, but still a bit above the average of 2.4 percent since the recovery began in mid-2009


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Phases of the Business Cycle According to standard terminology, the recession phase of the business cycle is the downward movement of GDP from its previous peak It is common to refer to the first phase of growth following the trough (low point) of the recession as a recovery. During that phase, idle equipment goes back on line and workers return to their jobs. Official reports call the entire growth phase of the cycle an expansion, but many writers apply that term only after GDP has reached its previous peak. Real GDP is now 8.8 percent above its pre-recession peak January 30, 2015 Ed Dolan’s Econ Blog


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Sources of Growth by Sector Consumption grew a little faster than in Q2 and well above its average for the past five years Investment growth was a little faster than in Q3, but less was fixed investment and more was inventory growth The government contribution to GDP was negative in Q4, largely due to the reversal of a burst of defense spending that had boosted Q4 growth Export growth, which has been a strong point of the recovery, slowed in Q4, while imports grew strongly, turning net exports from a positive to a negative Contribution by sector to the 2.6% GDP growth in Q4 2014 Note: Imports are recorded in the national accounts with a negative sign, so the -1.39 percentage points shown here represent an increase in imports January 30, 2015 Ed Dolan’s Econ Blog


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Inflation Turns Negative The price index for personal consumption expenditures fell at a -0.5 percent annual rate in Q4 A market based measure of PCE inflation, which excludes hard-to-measure items like financial services, fell at an annual rate of -1.1 percent The core PCE, which includes financial services but excludes food and energy, rose at a 0.7 percent rate, more slowly than in the previous two quarters All three versions of the PCE have slowed over the past three years January 30, 2015 Ed Dolan’s Econ Blog


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Policy Implications The Fed plays close attention to data from the national accounts in its formulation of monetary policy Slowing growth and low PCE inflation both make it less likely that the Fed will hurry to tighten policy any time soon January 30, 2015 Ed Dolan’s Econ Blog


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Click here to learn more about Ed Dolan’s Econ texts or visit www.bvtpublishing.com For more slideshows, follow Ed Dolan’s Econ Blog Follow @DolanEcon on Twitter


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