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Economy in Brief

US GDP Growth Revised Up
by Tom Moeller February 25, 2005

US real GDP growth in 4Q04 was revised up to 3.8% (AR), about the same rate of growth as in the prior quarter. The Consensus expectation had been for 3.6% growth in 4Q.

Trade sector deterioration is now estimated to have subtracted less from GDP growth; 1.43 percentage points versus 1.73 points estimated earlier. Statistics Canada corrected a $1.4B underestimation of U.S. exports to Canada during November. The correction contributed to a revision in total US goods exports to a 1.9% rate of growth (6.6% y/y) from -6.8% estimated in the advance report. Imports of goods rose 15.3% (11.4% y/y), revised from 12.2%.

An upward revision to inventory accumulation indicated that production increases to raise inventories added 0.6 percentage points to GDP growth versus 0.4 percentage points estimated earlier.

Domestic demand growth also was revised up slightly to 4.5% as growth in business fixed investment in equipment & software was raised to 18.0% (14.4% y/y) from 14.9%. Residential investment growth also was raised to 2.1% (6.2% y/y) from 0.3% but growth in PCE was lowered to 4.2% (3.7% y/y) from 4.6%.

Price inflation was revised up slightly to 2.1%. The price index for domestic demand grew 2.7% (2.9% y/y) driven by an upwardly revised 5.4% (4.9% y/y) increase in the state & local government price index.

Corporate profits for 4Q will be released on March 30th and will incorporate the effects of thespecial dividend paid to shareholders by Microsoft Corporation.

The Reform of 1979: How It Happened and Why is from the Research & Statistics and Monetary Affairs Division of the US Federal Reserve Board.

Chained 2000$, % AR 4Q '04 (Prelim. 4Q '04 (Advance) 3Q '04 Y/Y 2004 2003 2002
GDP 3.8% 3.1% 4.0% 3.9% 4.4% 3.0% 1.9%
  Inventory Effect 0.6% 0.4% -1.0% 0.4% 0.4% -0.1% 0.4%
Final Sales 3.2% 2.7% 5.0% 3.5% 4.0% 3.1% 1.4%
  Trade Effect -1.4% -1.7% -0.1% -0.7% -0.4% -0.3% -0.7%
Domestic Final Demand 4.5% 4.3% 4.9% 4.2% 4.4% 3.4% 2.1%
Chained GDP Price Index 2.1% 2.0% 1.4% 2.4% 2.2% 1.8% 1.7%
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