U.S. GDP 4Q Increase Is Lowered Slightly; Profits Are Firm

Last quarter was a strong one for the U.S. economy and the revised picture is little different from the one depicted earlier. The latest revision, however, lowered the growth rate slightly to 5.6% from 5.9%. Nevertheless, last quarter's growth remained the best since 3Q 2003 and it pushed the y/y change into (slightly) positive territory for the first time since early-2008. The revision exceeded Consensus expectations for 5.9% growth.

The addition to growth from inventories was notched down to 3.8 percentage points. The strength in rebuilding was necessitated by vigorous and unprecedented decumulation dating back to 2005.

Growth in domestic final demand also was shaved to a still slow 1.4% from 1.6%. Business investment in equipment & software was revised up slightly to 19.0% (-7.5% y/y) after a 1.5% 3Q rise. Investment in business construction, however, offset much of this increase with a 18.1% decline (-25.3% y/y) which was more than estimated last month. Growth in residential investment also was revised down to 3.7% (-12.6% y/y) though it remains the second consecutive quarterly increase. Personal consumption growth was little revised at 1.6% (1.0% y/y) following a 2.8% 3Q increase. Finally, government spending dropped an unrevised 1.3% (+1.3% y/y), led by a decline in defense spending as well as lower spending by state and local governments.

Improvement in the foreign trade deficit added an unrevised 0.3 percentage points to last quarter's gain in GDP. Strong growth in exports of 22.8% (-0.7% y/y) was little changed. That surge was offset, however, by a 15.8% (-6.6% y/y) jump in imports.

Price inflation was revised slightly higher to 0.5% as measured by the chained GDP price index. 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 quickened 2.1%. However, it increased just 0.2% for the whole year owing to the yearly decline in energy prices. The price index for fixed business investment fell 1.4% (-2.9% y/y), the fourth consecutive quarterly decline. A 2.7% increase (-2.6% y/y) in the residential investment price index offset a 3Q decline.

Corporate profits rose 8.0% (30.6% y/y) last quarter. The gain was driven by an 18.6% jump in financial sector earnings, which are up more than three-fold during the last year due to lower interest rates. Nonfinancial sector earnings benefitted from the economic recovery and cost cutting. The 8.7% (11.5% y/y) increase was offset, however, by a 5.0% decline (-7.6% y/y) in repatriated foreign sector profits.