The Bureau of Economic Analysis revised its figure for real gross domestic product (GDP) to 3.0 percent, up from last month’s estimate of 2.8 percent. The increased growth rate stemmed mostly from greater inventory accumulation than originally estimated.
Inventories, which were a drag on economic growth in the third quarter, rose dramatically in the fourth quarter, adding 1.88 percentage points to real GDP (or nearly 63 percent of the total gain).Other factors leading to the upward version include consumer spending and fixed residential investment; these were offset at least partly by additional drags from fixed nonresidential investment, higher imports and reduced government spending.
Overall, these figures show a renewed influence from manufacturing. As I noted in January with the original estimates, consumers accounted for roughly half of the increase in GDP. The other primary driver was inventories, as mentioned above.
Durable goods spending contributed 1.17 percentage points to GDP in the fourth quarter, with nondurables adding another 0.06 points. Beyond domestic consumption, the export of goods added 0.59 points. Trade was a drag on economic growth in the fourth quarter due to faster growth in imports.
The other large negative in the GDP growth stemmed from lower government spending. While state and local cuts have been a drag for some time, the federal government (particularly with defense budget and other spending cuts) has begun to also provide a negative contribution. Overall government spending subtracted 0.89 percentage points from real GDP in the fourth quarter, with 0.58 points coming from the federal level.
This upward revision was in-line with most analysts’ expectations. Real GDP grew 1.7 percent in 2011, below the 3 percent growth rate of 2010. I anticipate that the U.S. economy will grow by 2.6 percent this year, with first quarter 2011 growth around 2 percent.
Reduced inventory accumulation accounts for most of the expected decline from the fourth quarter of 2011 to the first quarter of 2012. With that said, manufacturers remain more optimistic about future manufacturing activity, which is a positive sign. The bottom line is that economists in general expect for 2012 to be slightly better than 2011, with modest growth overall.
Chad Moutray is chief economist, National Association of Manufacturers.
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