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Economy in Brief

U.S. GDP Growth, Surprisingly, Is Revised Down
by Tom Moeller  February 25, 2011

Real GDP growth during Q4 was reduced to 2.8% (SAAR) from the advance report of 3.2%. The revision was due to weakened growth in domestic final demand. The GDP figure was well below Consensus expectations for a revision to 3.6%. Nevertheless, growth remained the strongest since Q1 2010. For the full year, real GDP rose a moderate 2.8% and recouped the 2.6% lost during 2009.

Growth in domestic final demand was the main factor behind the downward revision to GDP. During Q4, its increase was lessened to 3.1% (AR) from 3.4% gain (AR), but that still was enough to pull the annual increase up to a moderate 1.8%, the most since 2006. Personal consumption grew at a lessened 4.1% rate, but growth in business investment was raised to 5.3%, though that still was its weakest of the economic recovery. Residential investment grew at a lessened 2.7% rate. Government spending fell at a lowered 1.5% rate led by a deepened 2.4% decline in state & local spending, down 1.4% for the full year due to lower tax receipts. Federal spending fell slightly (+4.8%) for the first down quarter since Q1 2009.

Growth in real final sales overall was lessened to 6.7% from 7.1% due to the revisions to domestic demand. An unchanged, positive foreign trade effect of 3.4 percentage points was fueled by exports which rose at a 9.6% rate (9.2% y/y) while imports fell at a 11.4% (+11.0% y/y) rate. It reversed most of the Q3 increase. A slower rate of accumulation offset the add from foreign trade, and the estimate was unchanged. Inventories subtracted 3.7 percentage points from Q4 growth, the most since Q1 1988.

Price inflation as measured by the chained GDP price index rose at 0.4% rate, slightly more than initially reported. The personal consumption chain price index rose an increased, but unrevised, 1.8% (1.2% y/y). The price index for fixed business investment also rose by an unchanged 0.8% (-0.2% y/y) but the residential investment price index rose at an increased 3.0% rate (0.0% y/y). That compares to a 3.4% decline during all of last year. The GDP figures are available in Haver's USECON and USNA databases and the expectations number is in AS1REPNA.

Chained 2005 $, % AR Q4'10 (Prelim.) Q4'10
(Adv.)
Q3'10 Q2'10 Q4
Y/Y
2010 2009 2008
GDP 2.8 3.2 2.6 1.7 2.7 2.8 -2.6 -0.0
 Inventory Effect -3.7 -3.7 1.6 0.8 0.3 1.5 -0.5 -0.5
Final Sales 6.7 7.1 0.9 0.9 2.4 1.4 -2.1 0.5
 Foreign Trade Effect 3.4 3.4 -1.7 -3.5 -0.4 -0.5 1.0 -1.1
Domestic Final Demand 3.1 3.4 2.6 4.3 2.8 1.8 -3.1 -0.6
Demand Components
Personal Consumption 4.1 4.4 2.4 2.2 2.6 1.8 -1.2 -0.3
Business Fixed Investment 5.3 4.4 10.0 17.2 10.0 5.6 -17.1 0.3
Residential Investment 2.7 3.4 -27.3 25.6 -4.7 -3.0 -22.9 -24.0
Government Spending -1.5 -0.6 3.9 3.9 1.2 1.0 1.6 2.8
Prices
Chained GDP Price Index 0.4 0.3 2.1 1.9 1.4 1.0 0.9 2.2
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