In their third estimate of the US GDP for the fourth quarter of 2013, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 2.64% annualized rate, up .27% from the 2.37% growth rate previously reported — but still down sharply (-1.53%) from the 4.19% reported for the 3rd quarter. The improvement in the headline growth came almost entirely from the BEA’s reassessment of consumer spending on services (adding .57% to the headline number, mostly from increased spending on health care). Offsetting that increase were downward adjustments to consumer spending on goods (-.06%), the growth rate for inventories (which lost -.16% and is now reported to be in slight contraction) and fixed investment (-.15%). Only minor adjustments were made to exports and imports. As a consequence of the consumer services revision and the slight inventory contraction the BEA’s “bottom line” growth rate for the economy (the “real final sales of domestic product”) strengthened by nearly a half percent to a 2.66% annualized growth rate.
Real annualized per-capita disposable income is now reported to have been essentially flat during the fourth quarter (gaining $1 annualized per-capita), and the household savings rate was adjusted back downward to 4.3% (down -.6% from the 4.9% in the prior quarter and down -2.3% year-over-year from the fourth quarter of 2012). That savings rate has been effectively absorbing the January 2013 2% increase in FICA tax rates — allowing households to sustain spending even as take-home pay took a haircut.
Finally, for this report the BEA assumed annualized net aggregate inflation of 1.56%. During the fourth quarter (i.e., from October through December) the growth rate of the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was slightly lower at a 1.46% (annualized) rate, while the price index reported by the Billion Prices Project (BPP — which arguably best reflects the experiences of the American consumer) was substantially higher at 2.46%. Under reported inflation will result in overly optimistic growth data, and if the BEA’s numbers were corrected for inflation using the BPP inflation rate the fourth quarter’s growth rate would have only been 1.78%.
Among the notable items in the report:
— The contribution of consumer expenditures for goods to the headline number decreased slightly to 0.66% (down -0.06%, and -0.37% lower than the 1.03% contribution in the prior quarter).
— The contribution made by consumer services spending increased to 1.57% (up from the 1.00% previously reported). Almost all of this increased spending was in health care.
— The growth rate contribution from private fixed investments decreased to 0.43% (less than half of the 0.89% reported during the prior quarter).
— Notably inventories are now reported to be contracting at a marginal pace — subtracting -0.02% from the headline growth rate (down -1.65% from the prior quarter). The prior three quarters had seen substantial inventory growth that had boosted the reported annualized growth rate by an average of 1%.
— The Federal government “shutdown” is still in the “current” reporting quarter (i.e., 4Q-2013), and it removed -0.99% from the headline number.
— Exports contributed 1.23% to the overall growth rate, essentially unchanged (up 0.01%) from the previous report. In context, this is the strongest export growth since the fourth quarter of 2010.
— Imports subtracted -0.24% from the headline number (unchanged from the previous report).
— The annualized growth rate for the “real final sales of domestic product” increased to 2.66% (up from the 2.45% in the prior quarter). This is the BEA’s “bottom line” measurement of the economy — and it is now slightly stronger than the headline number because of the minor contraction in inventories.
— And as mentioned above, real per-capita annual disposable income is now reported to have grown by a minuscule amount during the quarter — increasing a miserable $1 per year. But that number is down a material -$316 per year (roughly 1%) from the fourth quarter of 2012 (before the FICA rates normalized) and it is up less than 1% in total ($270 per year) since the second quarter of 2008 — some 22 quarters ago.
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