There are adjustments, and then there are adjustments. The difference between the advance and interim GDP estimates from the Bureau of Economic Analysis qualifies as the latter. Instead of a moderate-growth annualized rate of 3.2% as reported last month, the economy only grew at the stagnation level of 2.4%:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.4 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.1 percent.
The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent. With this second estimate for the fourth quarter, an increase in personal consumption expenditures (PCE) was smaller than previously estimated (see “Revisions” on page 3).
So consumer activity didn’t rebound as well as Commerce first estimated after all. Real gross domestic purchases only rose 1.8% in the fourth quarter, and the estimation of growth outside of inventory expansion (real final sales of domestic product) rose only 2.3% — down from the initial estimate of 2.8%. That means that a significant part of the drop came in a decline in actual growth, and not just a misunderstanding over inventory. That’s a big miss by the BEA from its initial estimate.
The New York Times notes the “disappointing” results:
The economy grew at a slower pace in the fourth quarter of 2013 than first thought, weighed down by disappointing retail sales, inventory adjustments and a less robust trade balance.
The Commerce Department said Friday it now estimates the economy grew by 2.4 percent in October, November and December, down from an initial estimate of 3.2 percent released on Jan. 30.
Economists had been expecting the government to revise the estimated rate of growth downward to 2.5 percent.
At 2.4 percent, the revised figure represents a substantial slowing from the pace of growth in the third quarter, 4.1 percent.
The NYT report talks about a “burst of optimism” last year being at risk. What optimism was that? The GDP growth for all of 2013 was 1.9%, which was lower than 2012’s 2.8%. The previous year had one decent quarter in Q3 of 4.1% annualized growth rate, and even that quarter only had a 2.5% annualized growth rate in real final sales of domestic product. That’s barely above projected growth levels for this year.
Consumer spending accounted for a large chunk of the revision after retail sales in November and December came in weaker than assumed.
Consumer spending was cut to a 2.6 percent rate, still the fastest pace since the first quarter of 2012. It had previously been reported to have grown at a 3.3 percent pace. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, contributed 1.73 percentage points to GDP growth, down from the previously reported 2.26 percentage points.
As a result, final domestic demand was lowered two-tenths of a percentage point to a 1.2 percent rate. The loss of momentum appears to have spilled over into in the first quarter of 2014, with an unusually cold winter weighing on retail sales, home building and sales, hiring and industrial production.
Weather will be a factor in 2014 Q1, but it wasn’t in 2013 Q4. The economy was stagnating well before the polar vortices arrived, and has been ever since the June 2009 technical recovery. This is just more of the same.