Friday, January 28, 2011

Advance Report: Real Annualized GDP Grew at 3.2% in Q4

by Bill McBride on 1/28/2011 08:30:00 AM

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.
GDP Growth Rate Click on graph for larger image in graph gallery.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the median growth rate of 3.05%. Growth in Q4 at 3.2% annualized was slightly above trend growth - weak for a recovery, especially with all the slack in the system.

A few key numbers:
• The change in real private inventories subtracted 3.70 percentage points from the fourth-quarter change in real GDP after adding 1.61 percentage points to the third-quarter change.

GDP would have been very strong without this change in private inventories. This was offset by a postive contribution from Net exports of goods and services of 3.44 percentage points.

• Real personal consumption expenditures increased 4.4 percent in the fourth quarter, compared with an increase of 2.4 percent in the third.

• Investment: Nonresidential structures increased 0.8 percent, equipment and software increased 5.8 percent and real residential fixed investment increased 3.4 percent.

The following graph shows the rolling 4 quarter contribution to GDP from residential investment, equipment and software, and nonresidential structures. This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, blue.

Investment Contributions Residential Investment (RI) made a small positive contribution to GDP in Q4 2010, and the four quarter rolling average is negative again following the slight boost from the tax credit early in 2010.

Equipment and software investment has made a significant positive contribution to GDP for six straight quarters (it is coincident).

The contribution from nonresidential investment in structures was slightly positive in Q4, although this will probably be revised down.

The key leading sector - residential investment - has lagged this recovery because of the huge overhang of existing inventory. Usually RI is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and this is a key reason why the recovery has been sluggish so far.