First GDP Estimate Suggests Sluggish 4Q Growth

The Bureau of Economic Analysis said its first estimate of gross domestic product showed the U.S. economy slowed somewhat in the fourth quarter.

BEA’s “advance” (first) estimate of the value of the goods and services produced by the nation’s economy, less the value of the goods and services used up in production, came in at just 0.7 percent in the fourth quarter. In the third quarter, real GDP increased by 2.0 percent.

The advance estimate is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the fourth quarter, based on more complete data, comes out on February 26; the third and “final” estimate comes out in late March.

BEA attributed the slight increase in real GDP to positive contributions from personal consumption expenditures, residential fixed investment and federal government spending, partly offset by negative contributions from private inventory investment, exports and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The repo said deceleration in real GDP primarily reflected a deceleration in PCE and downturns in nonresidential fixed investment, in exports and in state and local government spending that were partly offset by a smaller decrease in private inventory investment, a deceleration in imports and an acceleration in federal government spending.

BEA said real gross domestic purchases increased by 1.1 percent in the fourth quarter, compared to an increase of 2.2 percent in the third.

John Silvia, chief economist with Wells Fargo Securities, Charlotte, N.C., said while final domestic spending was positive, trade and inventories were drags. Inflation remained below the Fed’s 2 percent target. “It is worth noting that since the 1980s, real GDP has trended lower–a signal of a changing framework for the economy,” he said.

Silvia added that despite the slowing, some positive news came out. “Despite some uncertainty, consumers are in a much better position at this stage of the business cycle,” he said. “Household balance sheets are healthy and credit availability has improved. Residential investment continues to boost overall economic activity–up 8.1 percent in the fourth quarter. The pickup in household formations since the beginning of the year and continued low mortgage rates will continue to support the housing market recovery.”