Economists React to the Fourth-Quarter GDP Report: ‘The Underlying Picture Remains Good’ – Real Time Economics

The U.S. economy expanded at a 2.2% pace in the fourth quarter, with stronger consumer spending offsetting declines in business investment, exports and government spending.
Associated Press

U.S. economic growth expanded at a 2.2% pace in the fourth quarter of 2014, a weaker pace than an initial estimate but stronger than economists’ expectations. Solid consumer spending helped offset declines in business investment, exports and government spending. Economists weighed the contents of the report:

In one line: A correction after third-quarter strength; nothing to worry about. The structure of the revisions is better than we expected, with most of the hit coming in a big downshift in inventory accumulation, to $88.4 billion from $113.1 billion. We were always suspicious of the initial estimate, which was very hard to square with the monthly data. The downward revision accounts for more than the entire GDP revision, subtracting 0.7 percentage point from growth.” –Ian Shepherdson, Pantheon Macroeconomics

[Is the] downward revision to GDP actually good news?  GDP growth in the fourth quarter was revised down to 2.2% at an annual rate in the second estimate, down from 2.6% in the advance estimate. This was the weakest quarter since a contraction in the economy in the first quarter of 2014, when bad winter weather weighed on activity. But with 5.0% growth in the third quarter, growth in the second half of 2014 was a very good 3.6% per annum. On a year-ago basis economic growth was 2.4% in the fourth quarter.” –Stuart Hoffman and Gus Faucher, PNC Financial Services Group

That revision was entirely due to slower inventory accumulation, which is now estimated to have added only 0.1 percentage point to overall GDP growth, compared with 0.8 in the first estimate. A slower inventory build in the fourth quarter of last year means that inventories won’t be quite as big a drag on first-quarter growth as we feared. (They will still be a drag though because of the disruption to imports caused by the West Coast port dispute.)” –Paul Ashworth, Capital Economics

The second iteration of fourth-quarter GDP came in slightly better than the markets expected, with the downward revision less severe at 2.2% from 2.6%. Personal consumption was revised just a tad lower to 4.2% from 4.3%, but final sales to domestic purchasers were revised higher to 3.2% from 3.2%, suggesting that domestic consumption continued to power GDP growth during the final quarter of 2014. Real final sales were also revised higher to 2.1% from 1.8%, and while these stand below the extremely strong 5.0% pace seen in the third quarter, we believe they signal strong domestic demand that should continue to support U.S. economic growth in the months ahead.” –Gennadiy Goldberg, TD Securities

This report is a constructive one from a demand-side perspective…. If the Fed is looking for sustainable demand trends, then the pace of advance in domestic final sales suggests this criterion is being met (especially when potential GDP growth may be below 2% at the present time). The subtraction from net trade in 2014, at -0.6 percentage point, is the largest in a calendar year in 10 years, which provides more evidence to us that demand is outstripping potential growth.  Inflation is quiescent though with prices across the whole economy rising only 1.2% in 2014.” –John Ryding and Conrad DeQuadros, RDQ Economics

“Fourth-quarter GDP growth was revised downward from a first print of 2.6% annualized, but the adjustment was smaller than I had anticipated.  The 2.2% gain reported today represents a significant deceleration from the explosive second quarter and third quarter increases, but the underlying picture remains good.  Real domestic demand (GDP minus inventories and trade), my favorite gauge of the underlying health of the economy, advanced at a 3.2% pace in the fourth quarter on top of 3.4% and 4.1% rises in the second and third quarters respectively.  Taking into account the weather-depressed first quarter, the increase over the four quarters of 2014 was 2.85%, which would be very close to my estimate for the same measure for this year.” –Stephen Stanley, Amherst Pierpont Securities


Related reading:

GDP Growth Slows to 2.2% in Fourth Quarter

Takeaways from the Revised Fourth-Quarter GDP Report



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27 February 2015 | 3:21 pm – Source:


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