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 2.2 percent in the fourth quarter of 2006, according to preliminary estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent.
The GDP estimates released today are based on more complete source data than were available for the advance estimates issued last month. In the advance estimates, the increase in real GDP was 3.5 percent (see "Revisions" on page 3).
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 private inventory investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.
Let's look a little deeper into the numbers:
Personal Consumption Expenditures increased 4.4% -- a strong number. However, domestic investment decreased 11%. Residential investment decreased 19% -- by far the biggest reason for the overall drop. Nonresidential investment decreased .4%. While nonresidential fixed investment (buildings etc...) increased 2.8%, equipment and software investment decreased 1.8%.
Personal consumption expenditures added 3.05% to the 2.2% number. Purchases for non-durable goods added 1.38% to the 2.2% number with food purchases responsible for .69. Services added 1.2% to the 2.2% growth. Durable goods purchases added .47. This is the third quarter in a row when durable goods purchases have been weak.
Gross private domestic investment subtracted 1.92% from growth. That means if housing had been neutral (0% growth), overall growth would have been 4.1% - 4.2%. That should give you some idea of how important the housing slump is to the current economy.
Short version -- this number is weak but not cataclysmic. In addition, a downward revision has been expected.
6 comments:
Compare 2% of 13 trillion to the annual federal deficit.
Which number is bigger?
And these are the good times.
And bear in mind that the actual contribution of housing to the circular loop of spending and income occurs through the process of construction ...
... and there are further reductions in that activity that we already know will occur in this quarter, because housing starts is a leading indicator for construction activity.
And it is important to bear in mind that the employment impact of 3.5% annual growth and 2.2% annual growth is very different. The "zero point" for employment is not 0% GDP growth, but sufficient GDP growth to match productivity gains and growth in the prospective labor force, best measured by growth in the 18-65 population cohort.
2.2% annual GDP growth is very close to that zero point, which means that it is very close to the onset of a recession of labor employment (which generally leads into and trails out of a recession of GDP, precisely because the "zero point" for unemployment is normally at a positive economic growth rate).
I'm still thinking that a recession can be averted if another growth driver shows up sometime in this quarter.
Bruce, agree with you, but I just don't see where this other driver is going to come from. Calculated Risk has had some good charts up re weekly jobless claims, and it looks to me like a couple more weeks of 350K claims will put that chart right about at its average retracement at the beginning of recessions.
new home sales down 16%, down 50% y-o-y in the west
anonymous....
the budget deficit is currently under 2%, so the answer to your question is growth is greater.
What doesn't seem to be getting much attention is that the biggest revision took place in inventories, the strength in consumer demand was not expected and met out of inventory reduction. That's is a positive for first half GDP growth as the business cycle is in many ways an inventory cycle.
the FY 2006 budget deficit in actual dollars is 248.2 from http://www.fms.treas.gov/annualreport/cs2006/finhigh.pdf
The GDP for FY 2006 ended at 13,244.6
248.2 / 13,244.6 = 1.88%.
Real GDP growth 3.1%.
from http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
As per usual, this does not count social security and medicare surpluses. So we can say that debt growth and GDP growth are about even; but the finacial picture of the US looking forward is deteriorating.
If we go into a downturn, then expect further deterioration.
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