Source Newsroom: Cornell University
Steven C. Kyle, an expert in macroeconomics and government policy and a professor of management at Cornell’s Dyson School of Applied Economics and Management, discusses the implications of reports that the U.S. Gross Domestic Product unexpectedly shrank from October through December.
“The components of quarterly GDP reports are not only very volatile, but often subject to major revisions later on which sometimes can even change positive numbers to negative and vice versa. It is no surprise that occasionally there would be a negative report when all of the statistical stars are aligned the wrong way, but there are two big takeaway lessons from this report:
“One, the fact that ordinary volatility could result in a negative overall number is a testament to the sluggishness of the growth we have right now. A stronger underlying growth rate would be far less likely to ever result in a negative quarterly reading such as the one we just had.
“Two, the biggest contributor to the drop was a major cut in defense spending – even though defense is much less useful as a stimulus to the general economy than are other types of spending. This shows how important government spending overall is to our current recovery.
“The takeaway lesson? We still need a stimulus to our economy. Growth is too slow and unemployment too high for us to simply sit on our hands or worse, cut spending further. Besides, what better time to make productivity enhancing investments in infrastructure than when real interest rates are actually negative? It is a no-brainer anywhere outside of Washington DC.”