For the entire year, GDP increased 2.9% in 2010. This is in comparison to -2.6% annual GDP growth for 2009. While the press is jumping up and down over the largest GDP growth since 2005, look at the annual GDP growth for the last 20 years. We're not in the roaring 90's.
As a reminder, GDP is made up of:
Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.
Here is the Q4 2010 advance report breakdown of GDP by percentage point contributions:
- C = +3.04
- I = -3.20
- G = -0.11
- X = +1.04
- M = +2.40
Here is the Q3 2010 3rd revision breakdown of GDP percentage points:
- C = +1.67
- I = +1.80
- G = +0.79
- X = +0.82
- M = –2.53
Below are the percentage point differences, or spread between the third and the second revision GDP report components. This represents the change of gross domestic product growth contributions from Q3 to Q4. The change in private inventories was a -5.31 spread and trade was +5.14.
- C = +1.37
- I = -5.00
- G = -0.90
- X = +0.22
- M = +4.93
Changes in private inventories nose dived to subtract -3.70 percentage points from the change in Q4 GDP. Private businesses increased inventories $7.2 billion in Q4, following increases of $121.4 billion in Q3 and $68.8 billion in Q2 2010.
Below are real final sales of domestic product, or GDP - inventories change. This gives a better feel for real demand in the economy. This is the best news of this GDP release, it shows real demand jumped 7.1% in Q4, where Q3 real demand was at 0.9%, or life support.
Below the the St. Louis FRED graph for C, or real personal consumption expenditures of the above GDP equation. As we can see from the above, while PCE, or C in the above equation, increased dramatically in Q4.
Below is the breakdown in C or real PCE annualized change. Notice when times are tough, durable goods (bright red) consumption drops. Notice the increase in durable goods this quarter and Durable goods personal consumption was +1.48 percentage points of GDP. I'd claim durable goods implies the public thinks the economy is improving.
You might ask yourself how Imports could possibly add to GDP growth, when the United States runs a monthly trade deficit and imports subtract from GDP. It's due to the change, not the actual absolute deficit totals, which are absurdly high. When imports decelerate, that implies, per that quarter, more domestic goods and services were utilized to generate the changes in the rest of the GDP components. Therefore a deceleration in the trade deficit actually makes a positive contribution to GDP change. Keyword here is change, or growth, versus absolute totals. It's very similar to deceleration of private inventories negative affect on GDP.
The below graph is real imports vs. exports. While exports increased, it is the trade deficit that matters.
Below are the percentage changes of Q4 2010 GDP components in comparison to the 3rd revision Q3 2010 GDP report:
- C = +4.4%
- I = -22.5%
- G = -0.6%
- X = +8.5%
- M = -13.6%
The BEA's comparisons in percentage change breakdown of 4th quarter GDP components from Q3 2010 are below. Changes to private inventories is a component of I.
C: Real personal consumption expenditures increased increased 4.4% in Q4, compared with an increase of 2.4% in Q3. Durable goods increased 21.6%, compared with an increase of 7.6%. Nondurable goods increased 5.0%, compared with an increase of 2.5%. Services increased 1.7%, compared with an increase of 1.6%.
I: Real nonresidential fixed investment increased increased 4.4% in the Q4, compared with an increase of 10.0% in Q3. Nonresidential structures increased 0.8%, in contrast to a decrease of 3.5%. Equipment and software increased 5.8%, compared with an increase of 15.4%. Real residential fixed investment increased 3.4%, in contrast to a decrease of 27.3%.
X & M: Real exports of goods and services increased 8.5% in Q4, compared with an increase of 6.8% in Q3. Real imports of goods and services decreased 13.6%, in contrast to an increase of 16.8% in Q3.
G: Real federal government consumption expenditures and gross investment decreased 0.2% in the fourth quarter, in contrast to an increase of 8.8% in the third. National defense decreased 2.0%, in contrast to an increase of 8.5%t. Nondefense increased 3.7%, compared with an increase of 9.5%. Real state and local government consumption expenditures and gross investment decreased 0.9%, in contrast to an increase of 0.7%.
Motor Vehicles subtracted -0.34 percentage points from Q4 real GDP while computer final sales added +0.31 percentage point changes. This is different from personal consumption, or C auto & parts. Motor vehicles are bought as investment, as fleets by the government and so forth and in Q4, they plain didn't buy much, instead opted for computers. For example in private investment, transportation equipment contributed -0.25 percentage points to Q4 GDP.
Residential fixed investment added +0.08 percentage points to Q4 GDP after subtracting off -0.75 percentage points in Q3. Below is the raw totals on residential investment. If one could ever see the housing bubble and then it's collapse in terms of economic contributions, the below graph is it. Residential fixed investment is only 2.5% of this quarter's GDP growth.
Private, or not from the government Nonresidential investment is also anemic, with only a 4.4% change from last quarter and only a 13.4% contribution to Q4 GDP.
Real Gross Domestic purchases, which is whatever people in the U.S. bought, regardless of country of origin, decreased -0.3% in comparison of a 4.2% increase in Q3 2010.
The Price index for 2010 increased 1.3% in comparison to 0.2% for 2009. For Q4 2010, the price index increased 2.1%, but minus energy (read gas) and food, the price index increased 1.1% in Q4 2010. In other words, oil prices came to haunt the price index in the last quarter of 2010.
Here are the graphs from Q3 2010 GDP, 3rd revision report.
* In Table 2, the BEA reports GDP contribution components with their equation sign. If durable goods for example, decreased over the quarter or year, it is reported as a negative number. Imports, from the GDP equation, are already a negative for that is not something produced domestically. A negative sign implies imports increased for the time period and a + sign means the change in imports decreased. Or, from the GDP equation: . Confusing but bottom line exports add to economic growth, imports subtract.