An Honest Guess about G and GDP in 2014q4

Disappointingly, the BEA flash estimate is that US GDP grew at an annualized rate of only 2.6% from the third to the fourth quarter of 2014 after having grown at a 5 % annualized rate from the second to the third. This is well within the ordinary range of changes of growth rates without a clear or interesting cause.

I couldn’t help wondering if the reduction in GDP growth corresponded to a reduction in total US G (government purchases AKA government consumption plus investment). I have noted that the rapid growth in the 2nd and third quarters of 2014 occured at the same time that long declining US G turned up.

In fact, the decline of US real government purchases declined in the fourth quarter.


This is a guess about one data point, but it is very unusual for my guesses to be correct. I thought it was (barely) worth menitoning that a Keynesian guess about US 2014q4 G was correct.

udate: Again for the little it’s worth, the change in the change of real GDP (real GDP 2014q4 – 2 real GDP 2014q3 + real GDP 2014q2) is about twice the change in the change of real G (real G 2014q4 – 2 real G 2014q3 + real G 2014q2) giving a 2 datapoint regression estimate of the Government expenditure multiplier of about 2 which is very close to the estimate using data from the trough 2009q2 through 2014q2 (1.7) so the last data point fits the simple Keynesian model almost better than could be expected.

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