Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.5 percent in the fourth quarter of 2006, according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent.
The Bureau emphasized that the fourth-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4). The fourth-quarter "preliminary" estimates, based on more comprehensive data, will be released on February 28, 2007.
The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, and federal government spending that were partly offset by negative contributions from residential fixed investment and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.
The acceleration in real GDP growth in the fourth quarter primarily reflected a downturn in imports and accelerations in PCE for nondurable goods, in exports, in federal government spending, and in state and local government spending that were partly offset by downturns in private inventory investment and in equipment and software and a deceleration in nonresidential structures.
First, this number caught me by surprise. I predicted a recession in Q4 '06 or Q1 '07. It doesn't look like that's going to happen anytime soon.
So, let's look at the numbers to see where the US is growing.
Real personal consumption expenditures increased 4.4 percent in the fourth quarter, compared with an increase of 2.8 percent in the third. Durable goods increased 6.0 percent, compared with an increase of 6.4 percent. Nondurable goods increased 6.9 percent, compared with an increase of 1.5 percent. Services expenditures increased 2.9 percent, compared with an increase of 2.8 percent.
Looking at the numbers, we see something a bit odd. In the 3rd quarter, purchases of food subtracted .07 from the overall numbers. In the 4th quarter, food added .69 to the number. In two previous quarters, we saw very slow growth in food purchases, but no negative numbers. It seems odd that purchases of food would somehow subtract from overall growth.
Overall, personal consumption expenditures added 3.05 to the overall number. Furniture and household equipment added .43 to the overall GDP number while residential investment subtracted 1.16 from overall GDP? That seems a bit off, especially when the same expenditure added .1 an .2 to 2Q and 3Q respectively. Some of those purchases might have been end of the year presents to the house -- sprucing up the place etc.. But a doubling in the number?
National defense spending added .53 to the numbers, whereas this spending had subtracted from growth in the previous 4 quarters. Overall federal spending added .31 to the numbers, whereas federal spending had subtracted from growth in the previous 2 quarters.
Exports of services added .4 to the overall number. This is the third highest amount services have added to the GDP number in the last 12 quarters. More importantly, this number is abnormally high. I wonder if there was a mega-deal that is responsible for this.
Disposable personal income increased 1.1% from the 3Q. I will caution -- this is a macro level number disproportionately affected by upper-income levels. However, rich people spend as well so it's important to include them in the calculation. This is probably the biggest reason for the increase in GDP.
Residential investment subtracted 1.16 from the overall number. That's a huge hit; it's also the third quarter where housing has impacted GDP in a big way. What's interesting is how housing's damage is contained in housing (at least so far).
I'm nitpicking with some of the above comments. This is obviously a good number. And again, my prediction of a recession doesn't look to be that good.
