Fourth Quarter GDP Growth – Advance Estimate: Encouraging

The Bureau of Economic Analysis (BEA) released the advance estimate of real GDP growth for the fourth quarter of 2011. Real GDP grew at a seasonally adjusted annual rate of 2.8 percent, up from 1.8 percent in the third quarter. The main contributors were private inventory investment and personal consumption expenditures (PCE). Declines in government spending, at the federal, state and local levels reduced growth.

Private businesses added $56 billion to inventories in the fourth quarter, contributing 1.9 percent to real GDP growth. Some of this may be catch-up after reducing inventories in the third quarter, but any boost from inventory investment is likely to contribute less to GDP growth in coming quarters.

Growth in PCE accelerated to 2.0 percent in the fourth quarter from 1.7 percent in the third, while disposable personal income increased 0.8 percent, after declining 0.5 and 1.9 percent in the second and third quarters. A return to positive income growth bodes well for continued strength in PCE.

Growth in residential fixed investment (RFI) strengthened to 10.9 percent, adding to its string of modest but positive contributions to GDP growth, based on some momentum in single family housing starts in the final quarter of the year.

The BEA cautions that the advance release is based on data that is incomplete and subject to revision, so today’s estimate of the acceleration in the pace of economic activity is not final, but it is a good start.

Headwinds related to oil prices, European economic growth, and domestic political considerations with implications for US fiscal policy point to a softening of growth in the first half of 2012 before accelerating in the second half, but the pattern of improvement over 2011 is encouraging.

 



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