The Third Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 2.1% rate in the 4th quarter, revised from the 1.9% growth rate indicated by the second estimate reported last month, as personal consumption expenditures and inventory investment were greater than was previously estimated, while losses from trade were worse than was previously estimated. In current dollars, our fourth quarter GDP grew at a 4.2% annual rate, increasing from what would work out to be a $18,675.3 billion a year output rate in the 3rd quarter to a $18,869.4 billion annual rate in the 4th quarter, with the headline 2.1% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.1%, also known as the GDP deflator, was applied to the current dollar change.
Remember that this release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts. For our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 4th quarter GDP, which is linked to on the sidebar of the BEA press release. Specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts. The pdf for the 2nd estimate for the 4th quarter, which this estimate revises, is here.
Real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 3.5% annual rate in the 4th quarter, rather than the 3.0% growth rate reported last month, as a 5.5% increase in the growth rate of personal spending was deflated with an annualized 2.0% increase in the PCE price index, an inflation adjustment which was revised from the 1.9% PCE price index reported in the second estimate. Real consumption of durable goods grew at a 11.4% annual rate, revised from 11.5% in the second estimate, and added 0.82 percentage points to GDP, as real output of motor vehicles rose at a 16.2% annual rate and accounted for 0.39 of that growth. Real consumption of nondurable goods by individuals rose at a 3.3% annual rate, revised from the 2.8% increase reported in the 2nd estimate, and added 0.47 percentage points to 4th quarter growth, as lower real consumption of energy goods was the only drag on the quarter’s non-durables growth. Meanwhile, real consumption of services rose at a 2.4% annual rate, revised from the 1.8% rate reported last month, and added 1.11 percentage points to the final GDP tally, as an increase in the real output of health care services at a 5.6% rate accounted for more than half of the 4th quarter increase in services..
Seasonally adjusted real gross private domestic investment grew at a 9.4% annual rate in the 4th quarter, revised from the 9.2% growth estimate made last month, as real private fixed investment was revised from growth at a 3.2% rate to growth at a 2.9% rate, while real inventory growth was greater than previously estimated. Investment in non-residential structures was revised from shrinking at rate of 4.5% to shrinking at a 1.9% rate, while real investment in equipment grew at a 1.9% rate, unrevised from the 2nd estimate. At the same time, the 4th quarter's investment in intellectual property products was revised from growth at a 4.5% rate to growth at a 1.3% rate, while the growth rate of residential investment was also statistically unrevised at 9.6% annually. After revisions, the decrease in investment in non-residential structures subtracted 0.05 percentage points from the economy's growth rate, investment in equipment added 0.11 percentage points, investment in intellectual property added 0.05 percentage points , and growth in residential investment added 0.35 percentage points to the change in 4th quarter GDP...
Meanwhile, the growth in real private inventories was revised from the previously reported $46.2 billion in inflation adjusted growth to show inventory growth at an inflation adjusted $49.6 billion rate, which came after inventories had grown at an inflation adjusted $7.1 billion rate in the 3rd quarter, and hence the $42.5 billion positive change in real inventory growth from the 3rd quarter added 1.01 percentage points to the 4th quarter's growth rate, revised from the 0.94 percentage point addition to inventory growth reported in the second estimate. Since growth in inventories indicates that more of the goods produced during the quarter were left in a warehouse or sitting on the shelf, their increase by $42.5 billion meant that real final sales of GDP were actually smaller than GDP by that much, and hence real final sales of GDP grew at a 1.1% rate in the 4th quarter, compared to the real final sales increase at a 3.0% rate in the 3rd quarter, when the change in inventories was smaller.
The previously reported decrease in real exports was revised lower with this estimate, while the reported increase in real imports was revised higher, and as a result our net trade was a greater subtraction from GDP than was previously reported. Our real exports fell at a 4.5% rate, rather than at the 4.0% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their shrinkage subtracted 0.55 percentage points from the 4th quarter's growth rate. Meanwhile, the previously reported 8.5% increase in our real imports was revised to an 9.0% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their growth subtracted 1.27 percentage points from 4th quarter GDP. Thus, our weakening trade balance subtracted a net 1.82 percentage points from 4th quarter GDP, revised from the 1.70 percentage point GDP subtraction resulting from foreign trade that was indicated in the second estimate..
Finally, there was also a downward revision to real government consumption and investment in this 3rd estimate, as the real growth rate for the entire government sector went from a 0.4% rate to a 0.2% rate. Real federal government consumption and investment was statistically unchanged, however, as real federal spending for defense shrunk at a 3.6% rate and subtracted 0.14 percentage points from 4th quarter GDP, while all other federal consumption and investment grew at a 2.3% rate and added 0.06 percentage points to GDP. Note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services. Meanwhile, real state and local consumption and investment was revised from growth at a 1.3% rate in the 2nd estimate to growth at a 1.0% rate in this estimate, as state and local investment spending grew at a 3.3 rate and added 0.11 percentage points to 4th quarter GDP, while state and local consumption spending was little changed and had no statistical impact on GDP.
Our FRED bar graph for GDP below has been updated to reflect these latest GDP revisions. Each color coded bar shows the real inflation adjusted change, expressed in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013. In each quarterly grouping of seven bars on this graph, the quarterly changes in real personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in real private inventories is shown in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and investment is shown in pink, and the real change in Federal government spending and investment is shown in grey. Those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, which have therefore shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, they'll appear below the zero line. It's clear that the drop in exports and the surge in imports were the major negatives in the 4th quarter, and that with the increases in personal consumption expenditures, investment and inventories, the 4th quarter could have topped the third had our trade deficit merely remained flat.
(note: the above was excerpted from my weekly synopsis at Marketwatch 666)