The Commerce Department issued its scheduled revision to the 2011 fourth-quarter GDP growth rate this morning, lifting it from the advance report of 2.8% annualized growth to 3.0%. Most of the growth occurred in inventory expansion, although real final sales improved slightly from the first report:
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 3.0 percent in the fourth quarter of 2011 (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 1.8 percent. …
The increase in real GDP in the fourth quarter reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, nonresidential fixed investment, and residential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
However, despite the incremental improvement seen in these figures, there are a couple of serious red flags. Imports increased even more than previously thought, exports declined, and real final sales of domestic product — GDP minus inventory additions — still lagged far behind the overall GDP rate:
Real exports of goods and services increased 4.3 percent in the fourth quarter, compared with an increase of 4.7 percent in the third. Real imports of goods and services increased 3.8 percent, compared with an increase of 1.2 percent. …
The change in real private inventories added 1.88 percentage points to the fourth-quarter change in real GDP, after subtracting 1.35 percentage points from the third-quarter change. Private businesses increased inventories $54.3 billion in the fourth quarter, following a decrease of $2.0 billion in the third quarter and an increase of $39.1 billion in the second.
Real final sales of domestic product — GDP less change in private inventories — increased 1.1 percent in the fourth quarter, compared with an increase of 3.2 percent in the third.
This points to a demand dip in the first quarter of this year, which we saw yesterday in the durable-goods report — the worst in three years. Expanding inventories in one quarter either means a sense that demand will explode or a drop in production in following months and quarters. The durable-goods report provided an answer for what this inventory expansion meant.
Reuters takes a somewhat rosy look at the restatement:
The U.S. economy grew a bit faster than initially thought in the fourth quarter on slightly firmer consumer and business spending, which could help to allay fears of a sharp slowdown in growth in early 2012. …
Economists polled by Reuters had expected fourth-quarter GDP would be unrevised at a 2.8 percent pace. The economy grew at a 1.8 percent pace in the third quarter.
While the build-up in business inventories still accounted for much of rise in output in the last quarter, the revisions to GDP unveiled an improved tone for the first-quarter growth outlook.
Businesses were not as aggressive in their restocking efforts, which should help to allay fears of a sharper slowdown in output this quarter.
Well, one’s mileage may vary on that point, but consider this. The difference in overall annualized GDP growth rates between Q3 and Q4 was 1.2%. The difference between the rates of real final sales of domestic product was 2.1%. That looks to me like a very aggressive restocking effort, and an artificial difference between the two quarters built entirely on that restocking effort in the face of weak demand. It’s not recovery, and despite crossing a psychological barrier of 3%, it’s not even real growth of the kind that creates jobs in large enough numbers to get people back into the workforce.
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