Fourth Quarter GDP, Advance Estimate: An Annualized +2.8%
Gosh, “everybody” just “knew” that fourth quarter GDP growth was going to be 3% or more (See Update 2 — Some were even confident that it would be above 3% and speculated that it might really end up being 4%), and that there was soooooo much pent-up GDP growth left over from the third quarter’s disappointment.
Oops — and don’t forget that this is subject to two revisions, which in previous quarters during the POR (Pelosi-Obama-Reid) economy have generally gone the wrong way.
From Uncle Sam’s Bureau of Economic Analysis (bolds are mine):
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.8 percent in the fourth quarter of 2011 (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 1.8 percent.
… The increase in real GDP in the fourth quarter reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, residential fixed investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
… The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private
inventory investment and accelerations in PCE and in residential fixed investment that were partly offset
by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an
acceleration in imports, and a larger decrease in state and local government spending.… The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.8 percent in the fourth quarter, compared with an increase of 2.0 percent in the third. Excluding food and energy prices, the price index for gross domestic purchases increased 1.0 percent in the fourth quarter, compared with an increase of 1.8 percent in the third.
The change in real private inventories added 1.94 percentage points to the fourth-quarter change
in real GDP after subtracting 1.35 percentage points from the third-quarter change. Private businesses
increased inventories $56.0 billion in the fourth quarter, following a decrease of $2.0 billion in the third
quarter and an increase of $39.1 billion in the second.Real final sales of domestic product — GDP less change in private inventories — increased 0.8 percent in the fourth quarter, compared with an increase of 3.2 percent in the third.
So companies added lots of inventories (seasonally adjusted, of course) in hopes that people will be buying stuff in early 2012 — while personal consumption expenditures only increase at a 2.0% annual clip.
About that “residential fixed investment” — The increase was an annualized $8.5 billion on a base of $337 billion (see Table 3 at the full release), which is really $2.1 billion for a single quarter. It contributed 0.23 points to the annualized growth of 2.8 points. No, this is not a signal that housing is back (and besides, most of that increase may have gone to apartments).
I deliberately haven’t looked yet, but I can’t imagine that anyone is going to be impressed with this — and I expect the press to whine that government “cutbacks” killed fourth-quarter growth (0.93-point decrement to GDP, with over 75% of that [-0.72] in national defense).
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UPDATE 1, 9 a.m.: Zero Hedge’s succinct summary (bolds original theirs)–
The US economy grew at a 2.8% annualized pace in the supposedly blistering fourth quarter, yet the number was a disappointment not only in that it missed estimates of 3.0% (and far higher whisper numbers) but when one looks at the components, where a whopping 1.94% of the upside was attributable to a rise in inventories as restocking took place. And as everyone knows in this day and age a spike in inventories only leads to sub-cost dumping a few months later. In other words, the economy grew at a 0.8% pace ex inventories. Yet for all intents and purposes, this is considered “growth.” Personal consumption was also weaker than expected coming in at 2.0% on estimates of 2.4%
UPDATE 2, 9:15 p.m.: Flashback, from the Associated Press’s Martin Crutsinger on December 23 –
Economists think the economy is growing at an annual rate of more than 3 percent in the final three months of this year. That would be the fastest pace since a 3.8 percent performance in the spring of 2010.
Among the positive factors are a brightening job market, strong holiday shopping, further gains in factory production and cheaper gas prices, which leave consumers with more money to spend on other items.
Later that day, Crutsinger and Daniel Wagner upped the enthusiasm ante by entertaining the possibility that fourth-quarter GDP might be an annualized 4%.
Today’s initial AP report from Crutsinger (saved here at host for future reference, fair use and discussion purposes) gives absolutely no indication that this morning’s GDP release was in any way disappointing, and pretty much squares with how I predicted the press would handle today’s news:
The U.S. economy grew at a 2.8 percent annual rate in the final three months of last year, the fastest growth in 2011.
Americans spent more on cars and trucks, and companies built up their stockpiles. But growth in the October-December quarter – and all of last year – was held back by the biggest annual government spending cuts in four decades.
The Commerce Department said Friday that the economy grew just 1.7 percent last year, roughly half of the growth in 2010 and the worst since the recession.
Most economists expect businesses to ease up on restocking in the first three months of the year. That should slow first-quarter growth. And consumers may cut back on spending if their wages continue to lag inflation.
Note the clever use of “government spending” in the second paragraph. Crutsinger should know (heaven help him if he doesn’t) that the government-related figures in the GDP report only represent government purchases of goods and services, and is not at all evidence that there have been any real “cuts” in overall government spending. In the fourth quarter, the federal government’s portion of GDP in today’s dollars was an annualized $1.044 trillion, which is less than 30% of Uncle Sam’s $3.5 – $3.6 trillion in annual spending.
UPDATE 3: Ed at Hot Air notes that last quarter’s revisions shaved 0.7% from GDP. This has been the general pattern since Obama became president, so it certainly wouldn’t be a big surprise if 4Q11 ends up being 2.5% or lower.