The Bureau of Economic Analysis revised its real gross domestic product (GDP) estimates up in its second revision of growth for the fourth quarter of 2012. The latest data show that the U.S. economy grew 0.4 percent in the fourth quarter, which was in-line with consensus expectations. In this analysis, real GDP was an improvement from the original estimate of a 0.1 percent decline, and it also exceeds the 0.1 percent growth rate seen in the first revision. The revised data reflect increased contributions from nonresidential fixed investments and exports.
For the most part, the overriding story line has not changed much from the original release. The primary drags on growth were reduced spending on inventories and sharply lower defense spending figures. Decreased defense spending alone subtracted out 1.28 percentage points from real GDP in the quarter, with private inventories reducing output by another 1.52 percentage points. Hence, if it were not for those two factors, real GDP growth could have exceeded 3 percent.
This suggests that there were areas of strength in the economy to counteract those negatives. This mainly came in the form of higher consumer spending and business investment. Spending on goods and services rose 1.8 percent in the quarter, with the strongest growth coming from durable goods purchases. Goods purchases added 1.0 percentage point to real GDP. At the same time, there were large increases in fixed investment, both residential and nonresidential, which contributed another 1.69 percentage points to real GDP.
Looking ahead, we will closely be looking for the initial estimate of real GDP for the first quarter of 2013. It will be released on Friday, April 26, and we are currently expecting this figure to reflect 2.3 percent growth in output. This is higher than originally expected, as several indicators have come in stronger than the consensus.
With that said, there have also been some contracting forces in the economy, including higher taxes, across-the-board federal spending cuts, and the economic challenges overseas, primarily in Europe. With sequestration slowly kicking in and FY 2014 budget discussion kicking into larger gear in the second quarter of 2013, we might see some slowing of growth then. We currently expect growth in the second quarter to be around 1.8 percent, with 2.4 percent real GDP growth for 2013 overall.
Chad Moutray is chief economist, National Association of Manufacturers.