Real GDP rose a relatively strong 3.2 percent in the fourth quarter, ending the year on a decent note. This follows a 4.1 percent jump in the third quarter, which was buoyed by significant levels of inventory replenishment. For the year, real GDP increased a much more modest 1.9 percent, below the 2.8 percent rise seen in 2012.
Consumer spending and international trade data were the strongest elements in U.S. economic growth in the fourth quarter. Americans spent 4.9 percent more at the annual rate on consumer goods, with durable and nondurable goods growth up 5.9 percent and 4.4 percent, respectively. Personal consumption expenditures as a whole contributed 2.26 percentage points to the 3.2 percent real GDP growth figure. Consumer goods accounted for 1.12 percent of that contribution, with services adding another 1.14 percentage points.
Net exports were also up sharply. Goods exports jumped an annualized 15.1 percent in the fourth quarter, more than outstripping the 0.8 percent growth rate for goods imports. As such, net exports contributed 1.48 percentage points to real GDP, its strongest performance in the past three years.
These data also included some disappointments. Fixed investments added just 0.14 percentage points to real GDP in the fourth quarter, its slowest pace since the first quarter. Business spending on nonresidential structures, information processing equipment, and industrial equipment were all lower. Residential spending was also weak. On the positive side, there was increased spending on transportation equipment and intellectual property rights. Inventory replenishment was also higher, albeit adding less to real GDP than in the third quarter as expected (down from a 1.67 percent contribution to 0.42 percent).
The main drag on economic growth in the fourth quarter was federal government spending, subtracting 0.98 percentage points from real GDP. Note that this was the quarter that included the partial government shutdown, which might explain part of this figure. Both defense and nondefense spending were negative. In contrast, state and local government spending provided a slight positive contribution to growth for the third straight quarter, reflecting increasing strength in their financial positions.
Overall, these data suggest that the U.S. economy ended 2013 on a relative positive note, with modest growth and strength in consumer spending and exports. Yet, it is worth noting that this data also reflected some weaknesses, including lackluster business spending growth, reduced housing expenditures, and declines in federal government spending. For the year as a whole, 2013 was a disappointment, with just 1.9 percent growth in real GDP.
Nonetheless, manufacturers remain cautiously optimistic about growth in 2014, and the strong figures for demand and production in the second half of 2013 helps to provide some momentum moving into the new year. I expect real GDP to average at least 3.0 percent in 2014, and if this is the case, it would be the first year since 2005 for it to do so. Of course, for that to happen, we need to see continued growth in consumer and business spending, with strong exports numbers. Much of that will hinge on growth continuing in the overall economy, both domestically and globally. Policymakers should consider pro-growth measures to ensure that such growth can be achieved, building on recent gains.
Chad Moutray is the chief economist, National Association of Manufacturers.
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