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December 2014
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February 2015

January 2015

2014 Exits Like a Lamb

Real GDP grew at a mediocre 2.6% in the fourth quarter of 2014, according to the latest release from the BEA.   Keep in mind, this is the first estimate of real output for last quarter and subsequent revisions have been significant recently.  However, if this estimate holds up, it means that 2014 ended on a relatively weak note, after two very promising quarters.  The graph below shows quarterly real GDP growth for 2013 and 2014:


As the figure shows, 2014 was a mixed bag - with 2.4% growth for the calendar year.  The first quarter brought negative growth, probably supply and weather-related.  The second and third quarters both brought strong growth, but then that seems to have tapered off by the end of the year.  This followed just 2.2% growth in 2013.

But the long run picture certainly looks better than just a few years ago.  We now have five consecutive years of positive annual growth.  This graph shows the path of real GDP over the past fifty years:


Growth over the past five years hasn't been explosive, at just 2.2% (versus 3% over the last fifty years), but the expansion period since the Great Recession, which ended in June 2009, is now over five years.

Finally, we can look at the contribution to growth from the four components of GDP in 2014:


Over the course of the year, consumption contributed the most to growth but investment was also up.  Expenditures by all levels of government in 2014 were essentially flat, and net exports fell slightly (imports increased more than exports).

The next GDP update is scheduled for February 27.

More Deflation in December

Last week, the BLS released the Consumer Price Index (CPI) for December 2014. Overall, the CPI dropped 0.4 percent in December, largely driven by the 9.4% drop in gasoline prices. Core CPI, which excludes food and energy prices was flat during December.

The graph below shows one year growth rates in the seasonally adjusted CPI series.  Over the last twelve months the CPI increased just 0.66 percent, down from 1.23% the month before.

Screen Shot 2015-01-16 at 8.42.13 AM


The large decline is still mainly due to decreasing energy prices, including gasoline and oil. The energy index fell by 10.6 percent in the past year. Perhaps cold weather could stem this decline by increasing the demand for energy.

But while gas prices are falling, food prices are moving in the opposite direction. Food prices climbed by 3.4% last year, their largest annual increase in three years.

The table below shows the price change for selected goods and services in the past twelve months:

CPI Table 1214


  • Maybe you should buy your butter now.  The price of butter is still climbing quickly, rising "only" 22.5% in December, down from the 29.8% increase in October.
  • Textbook prices rose at 5 percent.  So that what a student could get for $150 last year, now costs $157.5.  Perhaps the new textbooks are better than the old ones.
  • The price change of hot dogs doubled. In November the increase was only at 6.0%, but in December, it was 12.1 percent.