GDP report raises concerns about this year’s growth rate

Soaring auto sales in fourth quarter aren’t considered sustainable

The economy may slip from its fourth-quarter growth clip early this year — and car sales are one of the biggest reasons.

The government reported Friday that gross domestic product rose at an annual rate of 2.8% in the last three months of 2011, the best performance since the second quarter of 2010. But economists think growth in the first half of 2012 will be more like 2.2%, according to the median estimate in USA TODAY’S quarterly economist survey. That doesn’t necessarily mean the recovery is slipping — more that it was never quite as strong as the fourthquarter numbers indicated.

The key issue is that car sales climbed at an unsustainable annual rate of 48%, which boosted GDP by 0.8% to 0.9%, says Dean Baker, an economist at the Center for Economic and Political Research in Washington. That followed a 25% annualized decline in the second quarter and a 1.6% gain in the third, he says. That swing was caused by the March earthquake in Japan, which scrambled car-industry supply chains, cutting production and depressing sales until the fourth quarter when dealer supplies rose, Baker says.

“You have to think of the fourth quarter as a catch-up for the earlier losses,” said Diane Swonk, chief economist at wealth-management firm Mesirow Financial. “The auto sector is one of the stronger ones in the U.S. economy, if only because it’s one of the few areas where you can get credit.”

It’s not as if car sales are going to fall off a cliff, said Rebecca Lindland, research director at IHS Automotive, a consulting firm. Sales in the fourth quarter were at an annual pace of 13.5 million vehicles and are expected to dip this quarter to 13.2 million before climbing to a yearly clip of 14 million by the fall, she said. That’s way above the 10.4 million sold in 2009 and below the 16 million to 17 million annual sales in the middle of the last decade.

“We’re still on a slow, steady pace toward recovery, but it won’t be without a few stumbles,” Lindland said, adding that the sales pace is all about economic confidence, because automakers are not offering unusually large incentives to goose sales. “It’s all about consumers saying, ‘I have a 10-year-old car, and I can’t get another brake job.’ ”

The fourth-quarter report was below the median 3.1% GDP growth forecast in USA TODAY’S economist survey. Final demand grew even more slowly, rising 0.8% as a gain in inventories accounted for the rest of the growth. Lower government spending cut GDP growth by 0.9 of a percentage point, University of Oregon economist Mark Thoma said.

The soft numbers raised concerns that the economy may fall short of 2012 forecasts.

“Today’s report shows less momentum heading into Q1 2012,” Bank of America Merrill Lynch economist Michelle Meyer said in a note to clients. “The gain in inventories means less need for stockpiling in the first quarter. In addition, soft consumer spending and business investment shows a slowdown in underlying momentum.”