The U.S. Commerce Department earlier this morning reported a notably lower revised figure for fourth-quarter gross domestic product growth. On point, Commerce said that the period saw a GDP increase of 2.4%, a decent aggregate growth figure, but much lower than the initially reported 3.2% gain. The downward revision was no surprise, with growth coming in about as expected.
All told, real gross domestic product--the output of goods and services produced by labor and property located in the United States--increased by the aforementioned 2.4% over the final three months of 2013. This revision, the first of two such adjustments, is based on more extensive source data than the initial estimate issued late in January. One month from now, Commerce will release its final revision for the recent quarter. Two months from now, that agency will take its first look at this year's opening quarter.
Behind this reduction in final-period improvement was a smaller contribution from personal consumption expenditures than had been previously estimated. That is a somewhat worrisome state of affairs. However, the reduction also suggested that private inventory accumulation was smaller, too, which is positive, and implies a potentially faster rate of growth going forward, as there should be less need to work off old inventory, which does not enhance production, or GDP growth.
Meanwhile, the growth of 2.4%, which was also well down from the third-quarter increase of 4.1%, primarily reflected positive contributions from personal consumption expenditures, exports, nonresidential fixed investment, and inventory investment. The deceleration in growth was primarily a function of the lesser inventory accumulation and a larger decrease than initially thought in federal government expenditures.
We should note that the large slowdown in GDP growth from the third to the fourth quarters was more apparent than real. In fact, personal consumption expenditures, the key component in this series, as it accounts for more than two-thirds of aggregate GDP growth, actually improved from the third to the fourth quarter of last year. Specifically, such spending, which had gained just 2.0% over the summer months, increased by 2.6% in the final period. Also, nonresidential fixed investment, which incorporates business spending, also stepped up its rate of gain in the final three months, as did exports.
The big difference was on the inventory side, where such restocking added a staggering 1.67 percentage points to growth in the July-through-September stanza. The increase was a mere 0.14 percentage point in the closing three months. Thus, looked at as a whole, there was more underlying strength during the concluding quarter than during the preceding one.
Finally, we would look for a further slowdown in the current interim, reflecting the major dislocations caused by the weather. For now, we think opening-period GDP will gain just 1%-2%, with the risks now, unfortunately, to the downside, in our view.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.