This is the BEA’s first guess at the fourth quarter’s GDP growth rate, and it estimates output to have risen by just 0.7%, following 2.0% in the third quarter. This is the slowest pace of growth since the first quarter’s 0.1% rise. Real final sales (GDP less inventories) rose just 1.1%. Real gross domestic purchases (GDP less exports plus imports) were estimated at 1.1%, following a 2.2% rise in the third quarter. Headline nominal GDP rose by just 1.5% from 3.3%. Aggregate inflation for the entire economy, as measured by the GDP price index, was pegged lower at 0.8%, down from the third quarter’s 1.3% growth rate. Excluding food and energy, the PCE price index rose 1.2% in the quarter (annualised), the same as in the third quarter.
Underlying sector growth showed personal consumption increasing by 2.2% and business investment falling by 1.8%; this was the result of growth of 5.3% decline in structures and a 2.5% drop in equipment spending. In terms of actual percentage-point contributions, the fourth-quarter change in economic activity was driven by: 1) personal consumption, 1.46 percentage points; 2) residential, 0.27 percentage points, and 3) government investment, 0.12 percentage points. Net exports, meanwhile, acted as the largest drag knocking off 0.47 percentage points, while inventories subtracted 0.45 percentage points.
Overall a pretty soggy quarter. While it’s true that much of the weakness came from inventories and trade, the sharp decline in business investment (again the further impact from the dollar and energy prices) was not very encouraging. The U.S. consumer, meanwhile has fared a little better, and housing activity is holding up well, but given the sharp fall in energy prices, which would have filtered through to consumers’ psyches by the fourth quarter, spending here was also underwhelming. Economists are counting on the first quarter of this year for a stronger rebound, however, recent factory orders data for December suggest that inventories are still too high and could also continue to be a drag in the quarter. This may be the case with trade as well, given the continued rise in the dollar. Overall, this was a flat quarter, though from the Fed’s perspective it is yesterday’s news and its impact on their thinking will already have been baked into its decision earlier this week.
For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.
Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.