4Q2013 Gross Domestic Product: Second (Preliminary) Estimate

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The Bureau of Economic Analysis (BEA) revised its estimate of 4Q2013 growth in real U.S. gross domestic product (GDP) from a seasonally adjusted and annualized rate of +3.2 percent (reported at the end of January) to +2.4 percent. Three of the four categories -- personal consumption expenditures (PCE), private domestic investment (PDI) and net exports (NetX) contributed to 4Q growth; government consumption expenditures (GCE) subtracted from growth.

Not only was the 4Q revision substantial (essentially cutting the estimate by one-quarter) but the latest growth rate was notably slower than the 4.1 percent posted for 3Q. Although consumer spending on goods contributed nearly half of the headline decrease (-0.4 percentage point) in this revision, weakness was fairly widespread; e.g., inventories (-0.3 percent), consumer services (-0.1 percent), governmental spending (-0.1 percent), exports (-0.3 percent) and imports (-0.1 percent). The only major positive contribution came from fixed investment, which added 0.4 percentage point to the headline number.

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After reviewing the BEA’s rather spectacular “miss” to 1Q2008 GDP (growth was ultimately revised to -2.7 percent, from the original estimate of +0.6 percent), the Consumer Metrics Institute concluded: “Given the BEA's ‘real-time’ track record, it is possible that the U.S. economy is currently in a state of flux -- with the weakening hinted at in this report both more pervasive and dynamic than the BEA currently understands. Unfortunately if that is true, the official GDP numbers will be among the last places to watch a downside event unfold.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.