GDP Revised Down from 3.2% to 2.8%

GDP Preliminary Q4 Estimates show GDP increased by 2.8%, lower than the expected 3.4% increase, following a 3.2% estimated increase in the advance Q4 estimate (today’s preliminary release is based on a more complete set of data), after increasing by 1.7% in the second quarter and 2.6% in the third quarter. A higher than estimated decline in government spending is the major cause for the downward revision of growth figures. Government spending decreased at 1.5%, higher than the earlier estimated decline of 0.6%. Consumer spending also increased by 4.1%, lower than the earlier estimated 4.4%. However, this is still higher than 2.4% for the third quarter and the fastest increase since the first quarter of 2006. But a sharp rise in crude prices is threatening to affect consumer spending and dampen the recovery significantly. The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment and exports. These gains were partly offset by negative contributions from private inventory investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased. The small fourth-quarter acceleration in real GDP primarily reflected a sharp downturn in imports, an acceleration in PCE, an upturn in residential fixed investment, and an acceleration in exports that were mostly offset by downturns in private inventory investment and in federal government spending, a deceleration in nonresidential fixed investment, and a downturn in state and local government spending.

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