Smith Faculty Opinion Article

By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

January 27, 2012

GDP Report Disappoints, Bodes Poorly for President Obama

Preliminary estimates indicate GDP growth was a disappointing 2.8 percent in the fourth quarter—analysts had expected 3.2 percent.

A huge jump in inventories accounted for 65 percent of all growth, indicating perilous overstocking. Consumers are expected to pull back a bit in the first quarter owing to mounting credit card debt.

Over stocking in the fourth quarter plus slower consumer spending, indicate growth will likely be less than 2 percent in the first quarter of 2012—my forecast is 1.8 percent.

Additional imports continued to be a big drag on growth—subtracting about three quarters of a percentage point, and more than additional exports added to growth.

Jobs growth lags GDP and will likely remain near December’s encouraging level when the January data comes out next Friday. However, look for jobs growth to slow and drag on Mr. Obama’s popularity during the critical spring and summer campaigning season.

General elections are generally decided by Labor Day—those polls usually indicate the winner as the ever longer campaign season hardens voters attitudes about candidates by fall.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.