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Economy in Brief

U.S. GDP 4Q Increase Made Stronger By Inventories
by Tom Moeller February 26, 2010

Rebuilding of depleted inventories was more of a factor behind improvement in 4Q economic than previously estimated. The result brought 4Q real GDP growth up to 5.9% (AR) from the advance estimate of 5.7%. Last quarter's growth was the strongest since 3Q 2003 and it raised the y/y change into (slightly) positive territory for the first time since early-2008. The revision slightly exceeded Consensus expectations for 5.7% growth.

Voluntary inventory accumulation now is estimated to have added 3.9 percentage points to economic growth last quarter. It was necessitated by vigorous and unprecedented decumulation dating back to 2005. Likely prompted by price deflation and poor demand, decumulation had reduced desired inventory levels too far.

Improvement in the foreign trade deficit contributed slightly less to growth than the previously estimated one-half percentage point. An upwardly revised 22.4% (-0.8% y/y) rise in exports followed a 17.8% 3Q gain as the lower value of the dollar continued to improve the competitiveness of U.S. products. That revision was offset, however, by a larger upward revision to growth in real imports to 15.3% (-6.7% y/y).

Growth in domestic final demand was left roughly unchanged at a moderate 1.6% after a 2.3% 3Q increase. These gains remain the first back-to-back quarterly increases since 2007. Business investment in equipment & software led last quarter's growth with an 18.2% (-7.7% y/y) increase after its 1.5% 3Q rise. Investment in business construction, however, offset much of this increase with a 13.9% decline (-24.3% y/y). Residential investment remained strong with a little-revised 5.0% gain (-12.3% y/y) which was the second consecutive quarterly increase. Personal consumption growth lagged with a downwardly revised 1.7% (1.0% y/y) increase. Finally, quarterly spending by government fell slightly more than initially estimated (+1.3% y/y), mostly due to a drop in defense spending.

Price inflation was revised slightly downward to a 0.4% gain as measured by the chained GDP price index after little or no inflation during the prior two quarters. Diminished price gains for all of last year pulled the annual increase down to 1.2% which was nearly its weakest increase since the early 1960s. The personal consumption chain price index rose a lessened 2.3% in 4Q and increased just 0.2% for the whole year owing to the yearly decline in energy prices.

The U.S. National Income & Product Account data are available in Haver's USECON and the USNA databases.

Chained 2005$, % AR 4Q '09  Preliminary 4Q '09 Advance 3Q '09 2Q '09 4Q Y/Y 2009 2008 2007
GDP 5.9 5.7 2.2 -0.7 0.1 -2.4 0.4 2.1
  Inventory Effect 3.9 3.4 0.7 -1.4 0.1 -0.7 -0.4 -0.4
Final Sales 1.9 2.2 1.5 0.7 -0.0 -1.7 0.8 2.5
  Foreign Trade Effect 0.3 0.5 -0.8 1.7 0.9 1.0 -1.2 0.8
Domestic Final Demand 1.6 1.7 2.3 -0.9 -0.9 -2.7 -0.4 1.7
Chained GDP Price Index 0.4 0.6 0.4 -0.0 0.7 1.2 2.1 2.9
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