4Q2011 Gross Domestic Product: Third (Final) Estimate

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The Bureau of Economic Analysis (BEA) estimated 4Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 3.0 percent, essentially unchanged from the previous 4Q revision, but higher than the final estimate of 1.8 percent in 3Q. Private domestic investment (PDI) – especially private inventories – and personal consumption expenditures (PCE) contributed to 3Q growth in that order, while net exports (NetX) and government consumption expenditures (GCE) exerted “drags.”
 

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Consumer Metrics Institute (CMI) summarized the GDP report as follows:

-- The headline number of 2.97 percent is certainly decent, and in the same historical "ball-park" context of pre-recession 4Q2006 (2.75 percent), some five years ago. The components of the current number, however, are significantly skewed relative to the historic reference:

-- In 4Q2006 both consumer goods and consumer services were growing at roughly comparable rates (which we might normally expect, should the growth be fueled by fatter wallets), and between them they contributed enough growth to nearly account for the entire headline number. That was certainly not true five years later.

-- In 4Q2006 "real" per capita disposable income was growing at a 4.28 percent annualized rate. That number dropped to a miserable 0.96 percent rate in 4Q2011, after actually going negative (i.e., contracting) in both 2&3Q2011.

-- The current dichotomy between consumer goods and services is likely telling us something about relatively inelastic demand for certain consumer goods (e.g., energy and food) even in the face of rising prices. If per-capita disposable income is tightly constrained any impact of rising food and energy prices will show up as decreased demand or softer prices (or both) in consumer services. This would cause the relative growth rates for goods and services to decouple in much the manner we are now observing.

-- In 2006 both exports and imports were adding positive contributions to the headline number, with exports alone contributing the equivalent of two-thirds of the headline. By the same quarter in 2011 the combined contributions from exports and imports had dropped from a positive 1.94 percent contribution to a -0.26 percent drag on the headline number.

-- In 2006 governments at all levels were contributing a modest 0.22 percent to the headline number. That number grew (under stimulus) to +1.21 percent in 2Q2009. But by 4Q2011 sharply contracting governments were sucking -0.84 percent from that headline number, a trend that is not likely to reverse anytime soon.

-- During 4Q2006 "real final sales" was growing at a robust 3.82 percent. Five years later that number was a relatively weak 1.16 percent.
 

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The 4Q GDP revision leaves the recession call made by Federal Reserve analyst Jeremy Nalewaik unchanged. Nalewaik’s analysis correlated the onset of recessions with a fall in the year-over-year change in gross domestic product (GDP) below 2 percent. Since 1947, the U.S. economy either was already or soon would be in recession each time the year-over-year change in GDP fell below 2 percent (the red dashed line in the figure above). The year-over-year GDP change stood at 1.62 percent in 4Q.