White House says Economy grew 3.9% Using a Different Measure of Growth

The Commerce Department reported Friday that fourth-quarter growth slowed markedly to a 2.6% annual rate from a torrid 5% pace in the prior three months.

On the surface, this gives the appearance that the economy hit a sizable soft patch.

But White House chief economist Jason Furman noted that all of the swings in the fourth quarter came from two notoriously volatile sectors—net exports and government spending.

In a blog post, Furman noted that the economy increased at a 3.9% rate in the October to December period, applying an alternative measure of GDP that strips out these volatile sectors. That figure is only a tad slower than the 4.1% rate in the third quarter.

Here’s one interpretation of the government spending component of recent GDP data:

The White House’s alternative measure, called “real private domestic final purchases growth,” is not included in the Commerce report.

Actually, the alternative index is now running at its fastest pace over the past three quarters since the start of 2005.

This squares nicely with the Federal Reserve’s statements this week that the economy was “expanding at a solid pace.”

Source: MarketWatch