Stronger Growth Estimated for the Fourth Quarter of 2015

Real gross domestic product (GDP) increased over the fourth quarter of 2015 at a stronger than previously estimated rate. The improved strength of quarterly GDP growth reflected improvements in gross private domestic investment and imports. These improvements more than offset declines in the contributions to GDP growth made by personal consumption expenditures, government consumption expenditures, and exports.

Real gross domestic product represents the value of the goods and services produced by the nation’s economy less the value of the good and services used in production, adjusted for price changes. According to the Bureau of Economic Analysis (BEA) report on National Income and Product Accounts, GDP increased at an annual rate of 1.0% in the fourth quarter of 2015. This is the “second” estimate of growth in the fourth quarter of 2015. In the first or “advance” estimate, BEA estimated that annualized quarterly GDP growth was 0.7%. The second estimate of GDP growth is based on more complete source data than were available for the advance estimate. The third estimate of fourth quarter GDP growth will be released on March 25th.

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Figure 1 compares the contributions to overall growth in the fourth quarter of 2015 reported in the advance estimate with the contributions reported by the second estimate. The sum of the contributions to growth by these 5 major categories sums to the overall percent change in GDP.

The advance estimate of quarterly GDP growth, 0.7%, reflected positive contributions made by personal consumption expenditures, 1.46 percentage points, and government consumption expenditures, 0.12 percentage points. The positive contributions made by these categories in the advance estimate were partially offset by gross private domestic investment, -0.41 percentage points, exports, -0.31 percentage points, and imports, -0.16 percentage points.

The positive contributions to growth made by personal consumption expenditures and government consumption expenditures in the advance estimate were lowered in the second release of GDP growth, personal consumption expenditures contributed less to overall growth while government consumption expenditures now subtract from growth. Additionally, the subtraction to overall GDP growth made by exports in the advance estimate worsened by the second estimate. Combined, the contribution in overall GDP growth by these 3 categories declined by .24 percentage points between the advance and the second estimate.

However, the decline in the contributions to overall growth made by these three categories were more than offset by the improvement in the contributions made by gross private domestic investment and imports*. The contribution to overall GDP growth made by these two categories combined rose by .54 percentage points between the advance and the second estimate.

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Over the year, GDP growth improved slightly. In 2015, GDP grew by 1.9%, measured as the percent change between the fourth quarter of 2014 and the same quarter in 2015, 0.1 percentage point greater than its rate of growth following the advance estimate, 1.8%. Professional forecasters in the mortgage industry expect the economy to continue to grow over the near term. According to Fannie Mae’s economic forecast, not yet updated with today’s release, GDP growth is expected to reach 2.0% in 2016 and then grow by an additional 2.0% in 2017.

*Unlike the other four major categories which are positively related to GDP growth, imports are negatively related to GDP growth.A decline in imports adds to GDP growth and an increase in imports subtracts from growth.



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