February 28, 2014

4Q13 Gross Domestic Product, First Revision (022814): An Annualized 2.4% (UPDATE: A Negative Growth ‘Obamacare Christmas’ Sighting?

Filed under: Economy,Taxes & Government — Tom @ 8:15 am

(This post originally appeared at 6:15 a.m. and has been carried to the top. It will be updated throughout much of this morning.)

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Predictions: Imagine that, they’re way down from the original annualized 3.2 percent a month ago —

  • Bloomberg — “Separate data may show the world’s largest economy expanded 2.5 percent in the fourth quarter, slower than a preliminary estimate of 3.2 percent, economists projected.”
  • Reuters — “Gross domestic product growth will probably be lowered to a 2.5 percent annual rate, according to a Reuters poll of economists. That would be down sharply from the 3.2 percent pace reported last month …”

I’ve followed business news reasonably closely this month, and though I have seen some allusions to 3.0% or slightly lower, I haven’t seen any mention of a reduction to 2.5% until now.

Update: The Associated Press also has a 2.5% prediction — an “expected trimming” of growth.

Though to be fair it was three weeks ago, Mark Zandi of Moody’s said in his ADP Employment Report conference call that he thought GDP would hold steady.

Last month after the original release, I wrote that “I would be surprised if the consumption or net exports figures hold up in future revisions. Though there are obviously other elements in consumption, the overall number doesn’t track with much more subdued Christmas shopping season results.” Consumption is the area economists are citing as the primary reason why the growth rate is expected to come down in today’s report.

I think economists and analysts may still be underestimating the writedown we’ll see today. Though I think it probably will come in at 2.4% or 2.5%, I would not be at all surprised if the figure is 2.0% or below.

We’ll see if that’s what actually happens here at 8:30 a.m.

HERE IT IS (full HTML version):

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.4 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.1 percent.

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent. With this second estimate for the fourth quarter, an increase in personal consumption expenditures (PCE) was smaller than previously estimated.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from PCE, exports, nonresidential fixed investment, and private inventory investment that were partly offset by negative contributions from federal government spending, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the fourth quarter reflected a deceleration in private inventory investment, a larger decrease in federal government spending, and downturns in residential fixed investment and in state and local government spending that were partly offset by accelerations in exports, in PCE, and in nonresidential fixed investment and a deceleration in imports.

Okay, let’s see what changed in contributions to GDP growth compared to the first report

  • Personal consumption: 1.73 points (was 2.26).
  • Gross private investment: 0.72 points consisting of 0.58 fixed and 0.14 in inventory increases (was 0.56, consisting of 0.14 and 0.42, respectively). Within the category, nonresidential fixed was 0.87 points, up from 0.46.
  • Net exports: 0.99 points, consisting of 1.22 exports and -0.24 imports (was 1.33, consisting of 1.48 and -0.15).
  • Government: -1.05 (was -0.93).

Based on what I see, I still think the consumption component is a wee bit high, but that the final number when published in March will be a tenth of a point or two lower at worst. But if there is to be another big move in the final report, I believe it will be downward (see the first Update as to why).

Today’s news is a big takedown from January’s initial report. I would also suggest that in terms of momentum, growth in October was probably much greater than November, which was in turn much greater than December, so the trend is not the economy’s friend.

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UPDATE: Macroeconomic Advisers seems to think that there will be (or should be) another big downward revision, and calculates that December was ugly —

Monthly GDP declined 0.6% in December, reversing about ¾ of a cumulative 0.8% increase over the prior two months. A majority of the December decline was accounted for by decreases in net exports and nonfarm inventory investment, but domestic final sales also posted a decline. The level of GDP in December was 1.1% below the fourth-quarter average at an annual rate. Implicit in our latest forecast of 1.7% annualized GDP growth in the first quarter are average increases in monthly GDP of 0.4% per month (not annualized).

That would imply a 0.2% increase during the whole quarter, which annualizes to 0.8%. Obviously, that’s wayyyy lower than the current 2.4%.

Addendum: Macro Advisers may really be confirming the existence of the Obamacare Christmas yours truly predicted in early November. If so, the Obamacare-affected 2014 doesn’t look very promising.

UPDATE 2: Zero Hedge — “And now, we await for the downward Q1 GDP revisions as sellside economists realize the US consumer was not nearly as strong as had been initially expected.”

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