Traverse City Record-Eagle

Opinion

February 15, 2013

Another View: Decline in GDP serves as message

The nation's economic data revealed a surprise for the last three months of 2012.

And an unwelcome surprise at that.

America's Gross Domestic Product, the broadest measure of economic activity, fell slightly in the final quarter of the year.

While the decrease was a small 0.1 percent, it definitely is not the direction we want to see the economy heading.

We suppose you can take comfort in the assessment by many economists, who said that data was a bit of a fluke. Two key areas weighing heavily on the GDP figure were a drop in inventories — likely linked to the Christmas season after merchants had built up supplies — and a decrease in government spending. That's something not expected to reoccur.

But is that true? Remember all that talk at the end of the year about the fiscal cliff and scheduled cuts in government spending if Republicans and Democrats couldn't get their acts together in Washington? Well, the deadline for those cuts was delayed for a couple of months, not resolved. Late this month, the same concerns may arise.

It's worth asking why consumers, amid an apparent recovery, would express a lack of confidence. The explanation is obvious: Consumers were reacting to the nonsense in Washington. The fiscal cliff debacle would shake anyone's confidence in this nation's political leadership.

That's the lesson here for federal officials. They may like to posture for their perceived constituencies. But we suspect those constituencies will evaporate if Washington's intransigence produces a return to recession.

What happens in Washington isn't simply politics and entertainment. It plays a major role, economically and psychologically, in terms of where the nation as a whole is headed.

If individuals and businesses are worried about government direction (or the lack of one), they will scale back and go into defensive mode. That will have harmful economic consequences.

Meanwhile, we also would point out last quarter's GDP decline was linked to decreased government spending. For America to reduce its deficit — something that must be done — federal spending cuts are necessary.

But they need to proceed in a rational, sensible manner. Haphazard actions such as the fiscal cliff aren't the results of sound public policy. They are symbols of failed leadership.

The GDP numbers and related economic data are warnings to Washington to shape up. Or else.

New Castle, Pa., News

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