U.S. real GDP grew 3.5% (AR) last quarter. It was both the fastest growth since 1Q06 and beat Consensus expectations for a 3.0% rise. The yearend figure raised growth for the full year to 3.4%, slightly ahead of 3.2% during 2005.

A 1.6 percentage point contribution to growth from an improved net export deficit was the largest contribution from foreign trade in ten years. It came due to a 2.4% (9.2% y/y) gain in exports while imports fell 3.2% (+3.1% y/y).

Final sales to domestic purchasers managed a respectable 2.4% gain despite a 19.2% (-12.6% y/y) drop in residential investment. That was the largest shortfall since early 1991. Personal consumption expenditures grew 4.4% (3.7% y/y) as spending on furniture & household equipment soared 15.1% (11.7% y/y).

Nonresidential fixed investment fell 0.4% (6.8% y/y) after a 10.% gain the prior quarter. Spending in each sector fell except for information processing equipment which rose a slight 1.8% (7.8% y/y) after a 10.0% jump during 3Q.

Reduced inventory accumulation subtracted 0.7 percentage points to 4Q GDP after positive contributions during the prior two quarters.

The GDP chain price index rose just 1.5%, its weakest quarterly advance since early 2003. The gain was restrained by a decline (-0.8%, +1.9% y/y) in the PCE chain price index which fell not only because of lower energy prices but lower durable goods prices as well. The services chain price index rose 3.4% (3.15 y/y), its fastest gain in a year. Less food & energy the PCE chain price index grew 2.1% (2.3% y/y).

Milton Friedman on Inflation from the Federal Reserve Bank of St. Louis is available here.