In their first 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 3.22% annualized rate, down .9% from the 4.12% growth rate during the third quarter. The weakening in the headline growth number came principally from commercial fixed investments (which pulled the headline down by -0.75%), slowing inventory growth (removing another -1.25%) and government spending (with the “shutdown” slicing an additional -1.01% from the headline). Positive contributions came from consumer services (adding 0.82% to the headline) and foreign trade (boosting it another 1.20%). The BEA’s own “bottom line” growth rate for the economy (the “real final sales of domestic product”) strengthened to a 2.80% annualized growth rate, principally as a result of the slowing expansion in inventories.
Real annualized per capita disposable income was reported to have been flat during the fourth quarter, and households had to reduce their personal savings rate to 4.3% (from 4.9% in the prior quarter). That savings rate had previously been recovering from a 2.5% hit during the first quarter as households struggled to absorb the 2% increase in FICA tax rates — but most of that recovery in savings rates has now been given back as households continue to deal with stagnating incomes.
Finally, for this report the BEA assumed annualized net aggregate inflation of 1.30%. During the fourth quarter (i.e., from October through December) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was lower at 1.09% (annualized), while in contrast the price index reported by the Billion Prices Project (BPP) was higher at an annualized rate of about 1.6%. If the CPI-U had been used to convert the “nominal” GDP numbers into “real” numbers, the reported headline growth rate would have been a somewhat higher 3.47%, but using the BPP index (which arguably best reflects the experiences of the American consumer) would have generated a lower 2.96% annualized growth rate.
Among the notable items in the report:
— The contribution of consumer expenditures for goods to the headline number increased to 1.12% (up slightly from 1.03% in the prior quarter).
— The contribution made by consumer services improved to 1.14% (up significantly from the 0.32% contribution in the prior quarter).
— The growth rate contribution from private fixed investments dropped to 0.14% (down substantially from the 0.89% in the prior quarter).
— Inventories continued to grow, but at a much slower pace — contributing only 0.42% to the headline growth rate (down -1.25% from the prior quarter).
— The “shutdown” caused a net contraction in governmental expenditures, subtracting -0.93% from the headline number. Although all of the contraction occurred at the Federal level, state and local spending was essentially flat.
— Exports contributed 1.48% to the overall growth rate, up nearly a full percent from the 0.52% in the prior quarter.
— And imports now subtracted a mere -0.15% from the headline number (compared to -0.39% during the prior quarter).
— The annualized growth rate for the “real final sales of domestic product” increased to 2.80% (up from the 2.45% in the previous quarter). This is the BEA’s “bottom line” measurement of the economy — which remains somewhat weaker than the headline number because of the ongoing (but slower) buildup of inventories.
— And as mentioned above, real per-capita disposable income was utterly flat from quarter to quarter. And that number is still down $317 per year relative to the fourth quarter of 2012 (before the FICA rates normalized).
The Numbers
As a quick reminder, the classic definition of the GDP can be summarized with the following equation:
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