GDP Growth in the Fourth Quarter – Getting Better

The Bureau of Economic Analysis (BEA) released the third estimate of real GDP growth in the fourth quarter of 2015, reporting a seasonally adjusted annual rate of 1.4%. The three separate estimates for the quarter, based on increasingly better (more complete) data, moved GDP growth from 0.7% to 1.0% to 1.4%. The latest revisions reflect faster growth of personal consumption expenditures (PCE) and better (less bad) exports. Inventory investment slowed more than previously estimated, subtracting more from growth in the current quarter, but putting the pace on a more sustainable path, leading to subtracting less or adding to growth going forward. The structures component of nonresidential fixed investment slowed less than previously estimated and less than in the third quarter, reflecting decelerating declines in the energy sector.

The slowdown in growth over the year reflects drags from slowing PCE growth, inventory adjustments following an earlier surge, declines in the energy sector based on collapsing oil prices, and to a lesser extent a strong dollar weakening exports. Upward revisions to PCE growth, a winding down of energy sector declines, more sustainable inventory investment, and a modest weakening of the US dollar so far in 2016, potentially spurring exports, combine to point to accelerating GDP growth going forward.

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