The Commerce Department has just released their first estimate of GDP growth during the fourth quarter, showing a 1.9% annualized rate, which is about what was expected.  Although this is down substantially from the Q3 growth rate of 3.5%, it was expected that 3.5% was an aberration, due to agricultural imports.  For full year 2016, however, GDP growth was about 2.1%, which is also the average for the last seven years.

Two things struck me as interesting in this report.  Our average growth rate of 2.1% is the slowest GDP expansion since World War II.  It is also the longest expansion since then.  Is there a relationship between these two facts?  Does fast GDP growth shorten the business cycle between recessions?  There has been precious little economic research on this, primarily because it is so difficult to control exogenous variables.  But, I still wonder . . .

Also, is 1.9% the most meaningful number to gauge GDP growth in a period of strengthening currency?  As the dollar strengthened during Q4, American-made products became more expensive for foreigners to buy and, therefore, exports fell.  Conversely, a strong dollar makes foreign-made products cheaper for Americans to buy and, therefore, imports to rise.  Without the resulting huge trade deficit, our GDP would have grown a whopping 3.6% — very close to Trump’s promise of a 4% GDP growth rate.  (He is already on-the-record for saying the dollar is too strong, making him the first president to ever say such a thing . . . but he is right!)

Bottom Line:  our economy is stronger than the stated GDP growth rate of 1.9%, but does that therefore shorten the business cycle and hasten the inevitable next recession?  I think not!