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Real GDP in the fourth quarter was estimated to have grown at an annual rate of 2.8 percent, falling just short of consensus expectations, according to the advance estimate from the Bureau of Economic Analysis. The real GDP growth in the fourth quarter was the largest gain since 2010:Q2, and was a full percentage point (pp) above third-quarter GDP growth. On a year-over-year basis, real GDP finished 2011 up 1.7 percent, compared with an increase of 3.0 percent in 2010.
Fourth-quarter growth was driven by gains in consumption and investment, and by the change in private inventories. The change in private inventories contributed the most to overall growth, adding 1.94 pp, after subtracting significantly from third-quarter growth. Personal consumption numbers were equally as strong, especially goods consumption. Durable goods consumption increased 14.8 percent, and nondurable goods added 1.6 percent after falling 0.6 percent in the previous quarter. Services grew 0.2 percent in the fourth quarter, well below its 1.9 percent increase in the prior period. Personal consumption expenditures added 2.0 pp to economic growth. Business fixed investment and residential investment also added to real GDP growth, but by smaller amounts. Residential investment grew 10.9, adding 0.2 pp to GDP growth, nonresidential structures fell 7.2 percent in the fourth quarter, and equipment and software investment increased 5.2 percent. Real BFI contributed 0.4 pp to output growth. Net exports subtracted 0.1 pp from real GDP growth in the fourth quarter, as gains in imports (a negative in the calculation of GDP) were greater than increases in exports.
By far, the largest negative component of real GDP was government consumption and investment. State and local governments continued their declines, decreasing 2.6 percent and subtracting 0.3 pp from real GDP growth. Federal expenditures and investment declined sharply, especially for defense. National defense decreased 12.5 percent over the quarter, offsetting slight gains in nondefense spending. Federal expenditures reduced real economic growth 0.6 pp as a whole. The 0.9 pp subtraction from GDP due to government spending and investment declines was the second large negative contribution in 2011 (the first quarter, government expenditures subtracted 1.2 pp), but is a historically rare occurrence. Real final sales of domestic product, which is GDP less the change in private inventories, increased 0.8 percent in the fourth quarter. This is a somewhat disappointing number, but less so when taking into consideration the historically large declines in government expenditures and investment.