The Bureau of Economic Analysis (BEA) released the advance estimate of real GDP growth for the fourth quarter of 2013. Real GDP grew at a seasonally adjusted annual rate of 3.2%. This is a slowdown from the annual rate of 4.1% in the third quarter.
The slowdown in the fourth quarter puts GDP growth on a more realistic path, but the deceleration isn’t over yet. Both the third and fourth quarters have been inflated by inventory investment. This “restocking of shelves” rather than fixed investment (i.e., expanding a productive capital stock) contributed 1.7 percentage points to growth in the third quarter and 0.4 points in the fourth quarter. We expect the inevitable slowdown in inventory investment to subtract 1.0 percent from growth in the first quarter of 2014 with more modest reductions following.
Overall, the report is mixed. The inventory cycle will turn against growth in the near term but personal consumption expenditures accelerated in the fourth quarter and the slowdown in fixed investment will be reversed as residential construction ramps up going forward. We expect GDP growth to slow in the first quarter of 2014 but to improve steadily through the rest of the year and continue into 2015.