GDP Report Positive, BUT…

Real gross domestic product increased at an annual rate of 2.1 percent in the fourth quarter, according to the “third” (final) estimate by the Bureau of Economic Analysis.

But we live in an age of lagging indicators, thanks to the coronavirus. The sudden and devastating impact of COVID-19 on the U.S. and global economies won’t begin to be statistically measured until next month’s report.

“Of course, the outlook has darkened significantly because of the COVID-19 outbreak that has caused economic activity in some industries and in some parts of the country to grind to a halt,” said Jay Bryson, Acting Chief Economic Officer with Wells Fargo Securities, Charlotte, N.C. “The outbreak in the United States was generally limited in January and February, so we still look for GDP to edge up 1.2% in the first quarter. But we forecast that real GDP will nosedive roughly 15% (annualized rate) in the second quarter, which would be the steepest rate of contraction on record.”

The report said the GDP estimate was based on more complete source data than were available for the “second” estimate issued last month.  In the second estimate, the increase in real GDP was also 2.1 percent. In the third estimate, an upward revision to personal consumption expenditures was largely offset by downward revisions to federal government spending and nonresidential fixed investment.

BEA said the increase in real GDP in the fourth quarter reflected positive contributions from PCE, exports, residential fixed investment, federal government spending and state and local government spending that were partly offset by negative contributions from private inventory investment and nonresidential fixed investment. Imports, a subtraction in the calculation of GDP, decreased.

Real GDP growth in the fourth quarter was the same as that in the third. In the fourth quarter, a downturn in imports and an acceleration in government spending were offset by a larger decrease in private inventory investment and a slowdown in PCE.

For all of 2019, BEA said real GDP increased by 2.3 percent, compared to an increase of 2.9 percent in 2018.