Friday, January 28, 2011

Real GDP Up 3.2%

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 3.2 percent in the fourth quarter of 2010,(that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent.

The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4). The "second" estimate for the fourth quarter, based on more complete data, will be released on February 25, 2011.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the fourth quarter primarily reflected a sharp downturn in imports, an acceleration in PCE, and an upturn in residential fixed investment that were partly offset by downturns in private inventory investment and in federal government spending and a deceleration in nonresidential fixed investment.

I'll be digging into the report over the weekend and will post on it extensively next week. However, here are some initial thoughts.

1.) I've seen in several internet posts that the consumer is dead or that nothing can happen until the consumer returns. Let's just say that statement is not based on a realistic appraisal or analysis of available data. The consumer is back. PCEs accounted for 95% of the top line growth number. Durable goods purchases increased 21.6% (motor vehicle and parts purchases accounted for 28% of growth) ; nondurable goods purchases increased 5%.

2.) Investment in equipment and software -- a strong driver of the previous few quarters growth -- increased 5.8%. While this is still a good rate of increase, it is below the previous quarters far more torrid pace. The change in private non-farm inventories subtracted from growth last quarter (as this growth in private inventories over the last year was somehow illegitimate growth according to some pundits, I'm sure this drop will be treated with a rousing chorus from the same parts).

3.) Imports decreased 13.6%. Don't expect this to repeat. Exports increased 8.5%, the sixth straight quarter of increases, while exports of goods increased 10%.

Overall, this is a good report. While I'm sure we'll see the litany of internet economists tell us this report somehow indicates the sky is falling or that we are of course doomed to the pit of fire, the reality (as in data based analysis) indicates this is the 6th straight quarter of economic growth, which is usually associated with an expansion rather than a recession.