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John Lindner |

Research Analyst

John Lindner

John Lindner is a former research analyst in the Research Department of the Federal Reserve Bank of Cleveland.

02.08.10

Economic Trends

Real GDP: Fourth-Quarter 2009 Advance Estimate

John Lindner

GDP had its strongest quarter in more than six years, coming in above the majority of analysts’ estimates at an annualized rate of 5.7 percent for the fourth quarter of 2009. The four-quarter growth rate returned to positive levels for the first time since the third quarter of 2008. The big jump was largely driven by a 3.4 percentage point (pp) increase in private inventories, which happened to be that component’s largest contribution to GDP growth since the first quarter of 1984. Smaller positive contributions also came in from all components except for government spending, and even that negative contribution (−0.02 pp) was minimal. Personal consumption rose another 2.0 percent in the fourth quarter, adding 1.4 pp to real growth. Residential investment grew 5.7 percent this quarter, much less than its third-quarter growth of 18.9 percent, but still contributing 0.1 pp to GDP growth.

Real GDP and Components, 2009:Q4 Advance Estimate

Quarterly change,
billions of 2005 $
Annualized percent change, last:
Quarter
Four quarters
Real GDP
182.0
5.7
0.1
Personal consumption
45.9
2.0
1.1
  Durables
−2.4
−0.9
4.0
  Nondurables
21.3
4.3
1.4
  Services
25.8
1.7
0.6
Business fixed investment
9.1
2.9
−14.6
  Equipment
27.9
13.3
−8.7
  Structures
−15.6
−15.4
−24.7
Residential investment
5.0
5.7
−12.1
Government spending
−1.1
−0.2
1.6
  National defense
−6.2
−3.5
3.1
Net exports
16.3
  Exports
62.8
18.1
−1.7
  Imports
46.5
10.5
−7.7
Private inventories
−33.5

Source: Bureau of Economic Analysis.

Two interesting developments in the latest release were net exports and business fixed investment (BFI). Exports grew 18.1 percent in the fourth quarter, adding 1.9 pp to real GDP growth and matching their third-quarter performance. This was partially offset by growth in imports of 10.5 percent, but net exports still added 0.5 pp to real growth. BFI also made a positive contribution to GDP despite opposing components. Equipment and software grew at a steady clip of 13.3 percent after having reversed their negative trend last quarter, while structures dropped for the sixth straight quarter, this time by 15.4 percent. On net, BFI added a total of 0.3 pp to GDP.

The final reading for 2009 real GDP growth was −2.4 percent, slightly ahead of December’s Blue Chip consensus forecast. The consensus estimate for 2010 growth ticked up 0.1 pp in January to 2.8 percent, while no quarter in 2010 is currently forecasted to top 3.0 percent. According to forward-looking forecasts, real GDP growth is first expected to reach its long-run trend again in the fourth quarter of 2010. January’s survey also started a forecast for 2011 growth and that value came in at 3.1 percent. Overall, these forecasts match the overwhelming concern that a recovery from the current recession will be a slow one.

A deeper look into the larger-than-expected growth for the fourth quarter of 2009 shows what some economists have been calling an “inventory blip.” When looking at the final sales of domestic products—which is just GDP less the change in inventories—it shows that demand for domestic goods grew only 2.3 percent. Comparing this to the third quarter numbers, what appears to be a 3.5 pp quarter-to-quarter increase in GDP translates into only a 0.8 pp increase in final sales. The picture turns even bleaker in looking at a measure of domestic demand for domestic goods, or final sales to domestic purchasers, which nets out exports and imports. In this case, there is a 0.5 pp drop from third-quarter to fourth-quarter sales, and final domestic sales grew only 1.8 percent. Effectively, this means that there is a more muted return to demand. Growth through 2010 should reflect such a soft return, as forecasters are predicting growth rates closer to the long-run average in all four quarters of the year.