GDP GROWTH SLOWS TO 3.2%, BUT PERSONAL CONSUMPTION ACCELERATES

GDP contributionsPantheon Macroeconomics‘The chart shows that Q4 growth was very different from Q3, but the trade boost is likely a one-time event and the weakness of investment (mostly the housing component) is disconcerting.’ — Ian Shepherdson, chief economist at Pantheon Macroeconomics.

The first look at fourth quarter U.S. gross domestic product is out.

According to the U.S. Bureau of Economic analysis, GDP rose 3.2% at an annualized rate in the fourth quarter, down from Q3’s 4.1% pace of growth but right in line with consensus estimates.

Personal consumption growth accelerated to 3.3% annualized in Q4 from 2.0% in Q3, but failed to reach consensus expectations for a 3.7% gain.

The quarter-over-quarter change in the price index of core personal consumption expenditures was 1.1% at a seasonally adjusted annualized rate, down from 1.4% in Q3 but right in line with consensus estimates. The GDP price index, meanwhile, fell to 1.3% from 2.0% (landing slightly higher than the 1.2% consensus estimate.

The contribution of inventories to GDP growth in Q4 was 0.42 percentage points, about a quarter of what it was in Q3.

“The deceleration in real GDP in the fourth quarter reflected a deceleration in private inventory investment, a larger decrease in federal government spending, a downturn in residential fixed investment, and decelerations in state and local government spending and in nonresidential fixed investment that were partly offset by accelerations in exports and in PCE and a deceleration in imports,” said the BEA in the release.

Below is a complete summary of the data from the release:

Real personal consumption expenditures increased 3.3 per cent in the fourth quarter, compared with an increase of 2.0 per cent in the third. Durable goods increased 5.9 per cent, compared with an increase of 7.9 per cent. Nondurable goods increased 4.4 per cent, compared with an increase of 2.9 per cent. Services increased 2.5 per cent, compared with an increase of 0.7 per cent.

Real nonresidential fixed investment increased 3.8 per cent in the fourth quarter, compared with an increase of 4.8 per cent in the third. Nonresidential structures decreased 1.2 per cent, in contrast to an increase of 13.4 per cent. Equipment increased 6.9 per cent, compared with an increase of 0.2 per cent. Intellectual property products increased 3.2 per cent, compared with an increase of 5.8 per cent. Real residential fixed investment decreased 9.8 per cent, in contrast to an increase of 10.3 per cent.

Real exports of goods and services increased 11.4 per cent in the fourth quarter, compared with an increase of 3.9 per cent in the third. Real imports of goods and services increased 0.9 per cent, compared with an increase of 2.4 per cent.

Real federal government consumption expenditures and gross investment decreased 12.6 per cent in the fourth quarter, compared with a decrease of 1.5 per cent in the third. National defence decreased 14.0 per cent, compared with a decrease of 0.5 per cent. Nondefense decreased 10.3 per cent, compared with a decrease of 3.1 per cent. Real state and local government consumption expenditures and gross investment increased 0.5 per cent, compared with an increase of 1.7 per cent.

The change in real private inventories added 0.42 percentage point to the fourth-quarter change in real GDP after adding 1.67 percentage points to the third-quarter change. Private businesses increased inventories $US127.2 billion in the fourth quarter, following increases of $US115.7 billion in the third quarter and $US56.6 billion in the second.

Real final sales of domestic product — GDP less change in private inventories — increased 2.8 per cent in the fourth quarter, compared with an increase of 2.5 per cent in the third.

“No headline shock but some of the details are startling,” says Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“Residential construction plunged at a 9.8% annualized rate, after five straight double-digit gains. This suggests the BEA has assumed a hefty drop in December, presumably due to the severe weather. By contrast, inventories rose even faster than in Q3, contributing 0.4% to GDP growth. This is unsustainable, as is the 1.3% contribution from foreign trade; both will be much weaker in Q1.”

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