United States: Economy holds ground at close of 2014 despite downward GDP revision
February 27, 2015
In the fourth quarter, GDP increased at a seasonally adjusted annualized rate (SAAR) of 2.2%, according to the second estimate released by the Bureau of Economic Analysis (BEA) on 27 February. The print marked a downward revision from the 2.6% expansion reported in the advance estimate, but came in just above market expectations of a 2.1% increase. The result was much weaker than the 5.0% growth registered in Q3. However, the good news beyond the headline is that the revised fourth quarter reading mainly reflected that inventory growth was weaker than initially reported. Private consumption data was roughly unchanged, non-residential investment growth was revised up substantially, and the external sector’s net contribution to growth was weaker because imports were revised up more than exports.
The revised estimate should not spark concerns about a slowdown as the underlying economic fundamentals are holding ground. Low gas prices and steady gains in the labor market will fuel economic growth going forward. Moreover, despite the quarterly revision, GDP growth for the full year 2014 was unchanged at 2.4%, which marked the fastest growth in four years.
On the domestic side of the economy, private consumption rose 4.2%, which was just below the 4.3% growth reported in the advance estimate. Non-residential fixed investment slowed from an 8.9% increase in Q3 to a 4.8% expansion in Q4 (advance estimate: +1.9% quarter-on-quarter SAAR). Meanwhile, residential fixed investment grew 3.3%, which matched the figure from the advance estimate. Government spending contracted 1.8% in Q4 (advance estimate: -2.2% qoq SAAR). Moreover, business inventories presented a smaller boost to GDP than initially reported.
On the external front, exports and imports were both revised upward. According to the second estimate, exports increased 3.2% in Q3 (advance estimate: +2.8% qoq SAAR). This marked a slowdown from the 4.6% expansion registered in Q3. Imports grew 10.1% in the fourth quarter (advance estimate: +8.9% qoq SAAR). As a result, the external sector’s net contribution to overall growth was revised down from minus 1.0 percentage points to minus 1.2 percentage points.
Author: Carl Kelly, Economist