Wednesday, February 28, 2007

GDP Increases 2.2%

From the BEA:

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.