The Bureau of Economic Analysis said that real GDP was revised lower in the fourth quarter to 2.4 percent. It has originally been estimated to be a 3.2 percent gain in the last quarter of 2014, helping to provide some momentum as we moved into the new year. Yet, the downward revision was largely expected, particularly given weaker data of late for manufacturing, retail, and housing activity. Still, even with the softer growth numbers in the fourth quarter, real GDP rose an annualized 3.3 percent in the second half of 2013, a nice improvement from the 1.8 percent gain seen in the first half of last year.
The revisions came in a number of areas, including consumer spending, inventories, net exports, and federal government spending. One of the brighter spots in this report was the upward revision for fixed investment growth. Fixed investments had added just 0.14 percentage points to real GDP in the earlier estimate, but with this revision, the contribution was increased to 0.58 percent. Strengths were seen in business spending for computers and peripherals, transportation and other equipment, and software-related intellectual property products. At the same time, residential construction activity declined 8.7 percent for the quarter, with inventory replenishment decelerating (down from a 1.67 percent contribution in the third quarter to 0.14 percent).
On the consumer side, personal expenditures grew an annualized 2.6 percent in the fourth quarter, down from the earlier estimate of 4.9 percent. The reduced growth rate stemmed from an easing in purchases for durable goods, nondurable goods, and services. Personal consumption expenditures added 1.73 percentage points to growth in the fourth quarter, down from the original estimate of 2.26 percent. Of that figure, 0.72 percentage points came from the consumption of goods.
Net exports continued to be a strong point in the latest data, albeit less so than earlier. Net exports added 0.99 percentage points to the total real GDP growth rate, down from the 1.48 percent contribution noted before. Yet, that contribution remains the largest since the fourth quarter of 2010. The healthy trade numbers stemmed from an annualized growth rate of 11.7 percent for goods exports, outstripping the 1.5 percent increase for goods imports.
The main drag on economic growth in the fourth quarter was federal government spending, subtracting one percentage point from real GDP. The government shutdown might explain part of this decline; although, this was also the fifth consecutive month with a negative contribution at the federal level as budgets have become tighter.
Overall, these data show that the U.S. economy continues to grow modestly, and the slower rate of growth noted in this revision was largely anticipated. Estimates for growth for the current quarter have also been downgraded somewhat, with real GDP growth of 2.1 percent expected for first quarter of 2014. Nonetheless, manufacturers continue to be mostly positive about demand and production for this year, and I still forecast real GDP growth of 3.0 percent for the year. Some of the current challenges are temporary ones, including (but not limited to) weather.
At the same time, this report also indicates the difficulty of sustaining robust growth, with real GDP in the fourth quarter down from the 4.1 percent gain seen in the third quarter. To be fair, a sizable percentage of the third quarter’s growth figure stemmed from inventory replenishment. With that in mind, policymakers should continue to pursue pro-growth measures that would allow manufacturers to expand and seek new opportunities.
Chad Moutray is the chief economist, National Association of Manufacturers.
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