Real GDP grew at an annual rate of 3.1% in the 4th quarther of 2004 according to the Bureau of Economic Analysis. Press release here. This is lower than than was expected and down about a point from the 4% rate in the 3rd quarter.
The street was expecting about 3.5%, and forecasts were for even lower in 2005Q1. Here's a link to a St. Louis Fed article that explains why. Business economists and forecasters have been concerned about investment for months now. In November, the forecasters were looking at 3.7% for the 4th quarter with about a 3 point drop in the growth of business investment (from 13 to 10%). By this week, the expectations had diminished further.
From the same St. Louis publication comes this chart which I look for every quarter and find extremely useful for visualizing the components of GDP and whether they are contributing to growth or acting as a drag on growth. (Click to enlarge.)
It is clear that the slowdown in investment (10.3% growth for nonresidential fixed investment, down from 13%) is partly to blame, but look at exports. Exports suffered their biggest decline in 2 years and represented a negative contribution to GDP growth. This Reuters article mentions the trade deficit, but not exports specifically. (Note: Macroblog links to another article that does.) Imports increased significantly, but the growth rate was well within its normal range, especially this early in an expansion. As Dave at macroblog points out, the export news isn't much of a surprise, but the chart shows that it makes a difference. PGL, commenting at macroblog, mentions that government spending grew little, and again the chart bears out the tiny contribution to overall growth.
The Reuters piece also tells us that Treasuries rose on the news, bringing the yield down to 4.14% from 4.22%. Will this have any impact on the FOMC meeting next week? The IEM seems to think not. The current price of the "up" contract is still over 98 cents. The price of the "up" contract for March is close to 93 cents.
Also, from macroblog, a good thing to keep in mind:
Furthermore, there is this reminder from the Commerce department report:The Bureau emphasized that the fourth-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency ... The fourth-quarter "preliminary" estimates, based on more comprehensive data, will be released on February 25, 2005.
From the same St. Louis Fed publication referenced above (National Economic Trends), we have this:
It's true that lately, the final and annual revisions have added a few tenths to the preliminary estimate. (Update: That should be advance and preliminary estimates.)
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