February 27, 2004 | WebMemo on Taxes
We economists are an ungrateful lot. When the economy grows at its trend rate, we call it "stagnant" or "disappointing" or "weak" without any sense of irony. Look up stagnant in the dictionary and you will find something like: "stag·nant adj. Not moving or flowing; motionless." But the economy we are describing is churning out products at a rate of $11.25 trillion per year. Imagine a car going 11.11 trillion miles an hour, and when it speeds up to 11.25, the geeky kid in back says it is stagnant.
Many economists expected that the Department of Commerce would announce today a downward revision of last year's fourth quarter GDP growth estimates, from a 4.0 percent annualized rate to around 3.5 percent: "stagnant," in other words. But that characterization of the number couldn't be farther from reality. A growth rate of 3.5 percent would be comfortably above the 10-year average of 3.2 percent growth. It would double the size of the economy in 20 years. More importantly, GDP growth, at whatever rate, means that the economy is expanding and that Americans are better off.
So much the better, then, that some economists don't have the opportunity to trot out their tired adjectives this morning. Commerce revised the GDP growth from the fourth quarter of 2003 upwards to 4.1 percent. On any scale, that's strong growth and anything but "stagnant." Today's upward revisions (see table) indicate the continued success of the Bush economic plan.
Most notably, the new release from the Bureau of Economic Analysis at the Commerce Department shows a strong surge in private investment in the fourth quarter, which grew at an annualized rate of 15.8 percent. This is up from the third quarter's 14.8 percent and strongly up from last month's advance numbers. Nonresidential fixed investment, equipment and software investment, and inventories all enjoyed strong upwards revisions. As these are harbingers of future business activity and economic growth, this news is especially welcome.
Fourth quarter estimates of growth in imports and exports were also revised upwards from already strong advance growth estimates. Exports grew in the fourth quarter at an annualized rate of 21.0 percent, showing the tremendous strength of U.S. export industries. This marks the fourth quarter in a row that export growth has increased. The jump in import growth from the third quarter of 2003 reflects increasing strength in personal consumption and private investment.
In all, today's strong numbers once again highlight the benefits of the President's pro-growth tax policies. Business investment, on which taxes were reduced in mid-2003, is driving the economy and will soon lead to increased job opportunities for American workers as the demand for labor rises (for more on tax cuts and business investment, see Tax Cuts Boost Business Investment by Rea S. Hederman, Jr.). Once again, credit should go to the White House and to the 108th Congress for loosening the reins on the productive side of the U.S. economy. To ensure continued growth, Congress should make the 2003 tax cuts permanent.
Timothy Kane, Ph.D., is Research Fellow in the Center for Data Analysis at The Heritage Foundation.