US ECONOMY SHRINKS: GDP FALLS 0.1% IN Q4

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Photo: Pete Souza/Official White House photo

The advance estimate for fourth-quarter U.S. GDP is out.The economy contracted 0.1 per cent in Q4 versus economists’ consensus expectations of a 1.1 per cent expansion.

Personal consumption growth came in at 2.2 per cent – slightly higher than consensus estimates of 2.1 per cent – but was driven largely by a 13.9 per cent advance in the consumption of durable goods.

Government spending was the largest driver of the economic contraction in the fourth quarter, subtracting 1.33 percentage points from Q4 GDP growth and falling 6.6 per cent. Federal spending fell 15.0 per cent, led by a 22.2 per cent drop in defence spending. Federal spending on nondefense items was actually up 1.4 per cent. State and local spending fell 0.7 per cent.

The drawdown in private inventories was the second culprit behind the contraction, subtracting 1.27 percentage points from Q4 GDP growth after adding 0.73 percentage points to Q3 GDP growth.

However, fixed business investment surged 9.7 per cent after advancing only 0.9 per cent in Q3. The investment surge added 1.18 percentage points to Q4 GDP growth.

While personal consumption expenditures were the biggest positive contributor to Q4 GDP growth, adding 1.53 percentage points, they were driven largely by the spike in consumption of durable goods, up 13.9 per cent from Q3. Consumption of nondurable goods was only up 0.4 per cent while consumption of services was up 0.9 per cent.

Exports fell 5.7 per cent while imports retreated 3.2 per cent. Net trade subtracted 0.81 percentage points from Q4 GDP growth.

The GDP Price Index came in at 0.6 per cent – below expectations – and core PCE came in at 0.9 per cent, right in line with expectations.

Below are highlights from the release:

Real gross domestic product — the output of goods and services produced by labour and property located in the United States — decreased at an annual rate of 0.1 per cent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 per cent.

The Bureau emphasised that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4 and the “Comparisons of Revisions to GDP” on page 5). The “second” estimate for the fourth quarter, based on more complete data, will be released on February 28, 2013.

The decrease in real GDP in the fourth quarter primarily reflected negative contributions from private inventory investment, federal government spending, and exports that were partly offset by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The downturn in real GDP in the fourth quarter primarily reflected downturns in private inventory investment, in federal government spending, in exports, and in state and local government spending that were partly offset by an upturn in nonresidential fixed investment, a larger decrease in imports, and an acceleration in PCE.

Final sales of computers added 0.15 percentage point to the fourth-quarter change in real GDP after adding 0.11 percentage point to the third-quarter change. Motor vehicle output added 0.04 percentage point to the fourth-quarter change in real GDP after subtracting 0.25 percentage point from the third-quarter change.

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