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Economy in Brief

4Q U.S. GDP Growth Revised Up
by Tom Moeller February 27, 2004

US economic growth last quarter was unexpectedly revised higher to 4.1% versus expectations for a slight downward revision.

Inventories contributed a greater 0.9 percentage points to 4Q GDP growth versus the advance estimate of a 0.6 point contribution.

Growth in nonresidential fixed investment also was revised higher to 9.6% (7.1% y/y) from 9.0% reported initially. Investment in equipment & software was revised up to 15.1% versus the advance report of an 11.5% surge.

Overall, domestic final demand growth was revised to 3.3% from 3.1%. Growth in real PCE was about unchanged at 2.7% versus 6.9% in 3Q. Residential investment grew 8.6% (AR).

Offsetting these upward revisions was the foreign trade sector which subtracted 0.3 percentage points instead of adding 0.2 points to GDP growth. Export growth of 21.0% was slightly faster than originally estimated, but import growth was revised up to 16.4% from 11.3%.

Inflation was revised slightly higher to a tame 1.2%.

Analysis titled "Globalization and Global Disinflation" from the Federal Reserve Bank of Kansas City is available here.

Chained 2000$, % AR 4Q '03
 (Prelim)
4Q '03
 (Advance)
3Q'03 Y/Y 2003 2002 2001
GDP 4.1% 4.0% 8.2%  4.3% 3.1% 2.2% 0.5%
  Inventory Effect 0.9% 0.6% -0.1% -0.1% -0.1% 0.4% -0.9%
Final Sales 3.2% 3.4% 8.3% 4.4% 3.1% 1.8% 1.4%
  Trade Effect -0.3% 0.2% 0.8% 0.3% -0.1% -0.6% -0.2%
Domestic Final Demand 3.3% 3.1% 7.2% 4.2% 3.4% 2.4% 1.6%
Chained GDP Price Index 1.2% 1.1% 1.6% 1.5% 1.7% 1.5% 2.4%
U.S. Consumer Sentiment Improved Late in February
by Tom Moeller February 27, 2004

The University of Michigan’s consumer sentiment index for the full month of February came in at 94.4 versus the mid-month read of 93.1. Nevertheless, sentiment still fell 9.1% from January. Consensus expectations had been for a February reading of 94.0.

During the last ten years there has been an 75% correlation between the level of consumer sentiment and the y/y change in real PCE. That correlation has risen to 84% during the last five years.

Perceptions of current economic conditions improved as the full month index came in at 103.6 versus 100.4 mid-month. The 5.4% m/m slide followed a 12.9% rise in January.

The expectations index dropped 11.6% m/m, about the same as the mid-month reading.

The University of Michigan survey is not seasonally adjusted.It is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

University of Michigan Feb Jan Y/Y 2003 2002 2001
Consumer Sentiment 94.4 103.8 18.1% 87.6 89.6 89.2
   Current Conditions 103.6 109.5 8.6% 97.2 97.5 100.1
   Consumer Expectations 88.5 100.1 26.6% 81.4 84.6 82.3
Chicago Purchasing Agents' Index Firm
by Tom Moeller February 27, 2004

The February Chicago Purchasing Managers Business Barometer fell slightly to 63.6 from the near-ten year high of 65.9 in January. That matched Consensus expectations for a reading of 63.5.

During the last twenty years there has been a 52% correlation between the level of the Chicago PMI and quarterly growth in real GDP.

The new orders index fell to 67.5 from 69.7 in January. The Jan-Feb average of 68.6 is versus a 4Q average of 65.4.

Production fell to 73.0 from 76.5 in January. The 74.7 average is versus 68.9 in 4Q.

Employment surged to 54.8, the highest level since April 1998. During the last ten years there has been a 69% correlation between the level of the employment index and the y/y change in payroll employment.

The index of prices paid fell slightly to a still-high 66.9.

Chicago Purchasing Managers Index, SA Feb 04 Jan 04 Feb 03 2003 2002 2001
Business Barometer 63.6 65.9 53.6 54.7 52.7 41.4
  New Orders 67.5 69.7 57.1 58.0 56.2 42.3
Prices Paid 66.9 67.8 54.8 55.8 56.9 50.4
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