Economy Grew 3.0% Annualized, Faster Than Expected in 4th Quarter; Or Did It?

Reuters reports Economy grew faster than expected in fourth quarter

Gross domestic product expanded at a 3 percent annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said on Wednesday in its second estimate.

The reading, which was up from the 2.8 percent pace the government reported last month and reflected modest upward revisions to almost all components of GDP, added to the recent run of fairly upbeat economic reports.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, was raised to a 2.1 percent rate of increase from 2 percent. At the same time, growth of real disposable income was revised up to a 1.4 percent rate from 0.8 percent.

"Consumers are spending from rising income rather than digging into their savings to spend," said Shulyatyeva.

Business investment in capital goods was lifted to a 2.8 percent pace from 1.7 percent, but still weak compared to the recent trend. Outlays on home building were firmer than previously estimated, while investment on nonresidential structures was modestly weak.

While a rebuilding of inventories added a hefty 1.88 percentage points to GDP in the last quarter, the increase was revised down to $54.3 billion from $56.0 billion.

"The large boost to GDP growth from stock building in the fourth quarter is unlikely to be repeated in first quarter but the household accounts provide a much more encouraging backdrop for consumer spending," said Peter Newland, a senior economist at Barclays Capital.

Excluding inventories, the economy grew at a 1.1 percent rate, rather than the 0.8 percent initially reported. That was still a sharp step-down from the prior period's 3.2 percent pace.

The report also showed exports were not as strong as previously thought, but imports are also not growing strongly, leaving a smaller trade gap that was less of a drag on growth.

It also showed still moderate inflation pressures, though a

price index for personal spending rose at a 1.2 percent rate instead of 0.7 percent.

GDP Price Indices 

The rise in income is nice but excluding the inventory correction, the rise in GDP was anemic.

Moreover, please note Excel Spreadsheet Table 4.--Price Indexes for Gross Domestic Product and Related Measures: Percent Change From Preceding Period in the BEA's GDP Report.



My friend BC Writes

Does anyone actually believe prices decelerated at a 70% quarterly annualized rate in Q4?

Had the trend rate of the deflator held from Q1-Q3, annualized real GDP for Q4 would be 1.3% instead of 3%, 1.2% yoy, and a slight contraction q-q for real final sales and barely 1% yoy (historically recessionary).

It would not surprise me were the NBER in 3 quarters or more to date a recession as having begun in Q1 '12 after the economy stalled in Q4 '11.

BTW, the Treasury withholding receipts from Jan. to Feb. indicate a contraction in employment, which fits with Gallup's self-reported employment survey.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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