4Q2023 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) boosted the headline growth rate of the U.S. economy to above both prior estimates -- i.e., a seasonally adjusted and annualized rate (SAAR) of +3.40% (+3.2% expected), up 0.17 percentage point (PP) from the second estimate (“4Qv2”) but -1.48PP from 3Q2023.

As can be seen in the right-hand graph above, the underlying components have shifted around quite noticeably over time. Although all four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- have consistently contributed positively to the headline, the contributions of PDI and NetX have diminished.

“The increase in real GDP [in the 4Qv3 revision] primarily reflected increases in consumer spending, state and local government spending, exports, nonresidential fixed investment, federal government spending, and residential fixed investment that were partly offset by a decrease in private inventory investment,” the BEA reported. “Imports, which are a subtraction in the calculation of GDP, increased.”

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As for details (billions of chained 2017 dollars; all relative to 4Qv2) --

PCE (+11.8):

* Goods (-3.4). Spending on durable goods edged up (+0.2), led by motor vehicles and parts (+0.7) and recreational goods and vehicles (+0.4) but largely offset by furnishings and durable household equipment (-0.8). Also, nondurable goods fell (-3.4), led by food and beverages for off-premises consumption (-2.0) and other nondurable goods (-1.3).

* Services (+14.5). A jump in health care costs (+11.1) dominated this category.

PDI (-1.1):

* Fixed investment (+10.2). Gains in nonresidential investment (+11.2) were spread among structures (+4.9), equipment (+2.0), and intellectual property products (+3.5). Residential fixed investment was revised by -0.1.

* Inventories (-11.4). Nonfarm inventories (-11.5) led the drop in this category.

NetX (-3.6):

* Exports (-8.0). Services (-13.3) led the downward revision in this category.

* Imports (-4.3). Here, too, services (-4.0) dominated. Because imports are a subtraction in the calculation of GDP, the downward revision tempered 4Q’s NetX decline.

GCE (+3.7):

* Federal (+0.3). Nondefense consumption expenditures (+0.5) led this category.

* State and local (+3.3). Gross investment (+2.9) dominated here.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.86% (+0.37PP from 4Qv2), a level 0.26PP above the 3Q2023 estimate. QoQ growth in gross domestic income, by contrast, was reportedly even stronger than GDP, at +4.8%, up from +1.9% in 3Q2023.

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“The strong GDP number -- 3.4% vs 3.2% expected -- is another reminder of how resilient this economy continues to be,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

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.