4Q2014 Gross Domestic Product: Second (Preliminary) Estimate

Click image for larger version

According to the Bureau of Economic Analysis’ (BEA) “preliminary” estimate, 4Q2014 growth in real U.S. gross domestic product (GDP) was pegged at a seasonally adjusted and annualized rate of 2.2% -- down nearly 0.5 percentage point from the previous (“advance”) 4Q estimate, and 2.8 percentage points lower than 3Q’s 5.0%. Analysts had expected a deeper revision to 2.1% (ranging from +1.7 to 2.4%). Personal consumption expenditures (PCE) and private domestic investment (PDI) contributed to 4Q growth, while net exports (NetX) and government consumption expenditures (GCE) subtracted from it.

Changes in this report primarily reflected a downward revision to private investment (mainly inventories) and an upward revision to imports that were partly offset by upward revisions to nonresidential fixed investment and to state and local government spending. 

Click image for larger version

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

The revisions in this report are relatively minor, and probably should be considered just "noise" in the context of an economy with a slowing growth rate. Among our observations about this report are:

-- At face value, the 4Q2014 +2.06% "bottom line" Real Final Sales growth rate seems plausible.

-- The reported strong 3-to-4Q growth in fixed investment occurred primarily in two areas: IT spending and the recently added (and very fuzzy) arena of "intellectual property."

-- Rampant or rogue deflators are likely as much a factor in the headline number as real growth.

“Looking forward,” wrote CMI’s analysts, “we are often told that ‘bad weather’ is a major factor in 1Q economic data -- keeping shoppers home and suppressing construction work. Given the quarter-to-quarter weakening already evident in the GDP numbers, 1Q2015 probably wasn’t going to be particularly pleasant even before the recent record snowfalls. It could now be getting just as nasty as the weather itself.”

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.