| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Quarter over Quarter - Annual Rate | 2.9% | 2.5% to 3.0% | 2.7% | 2.9% |
| Personal Consumption Expenditures - Annual Rate | 2.0% | 1.9% to 2.1% | 1.4% | 2.1% |
Highlights
The second estimate of fourth quarter 2022 GDP is revised lower to up 2.7 percent following an increase of 3.2 percent in the third quarter. The reading is slightly below the consensus of up 2.9 percent in an Econoday survey. The revision lower is mainly due to weaker growth in personal consumption expenditures than previously reported and a wider trade gap in net exports.
Personal consumption expenditures rose 1.4 percent in the second estimate for the fourth quarter 2022. Expenditures for durable goods are down 1.8 percent from the prior quarter, nondurables up 0.2 percent, and spending on services up 2.4 percent. The change reflects weakness in big-ticket hard goods like motor vehicles. Spending on soft goods is in part from declines in energy costs. Spending on services increased from demand and on higher prices where non-housing services inflation remains resistant to more restrictive monetary policy.
Offsetting some of the decline in personal spending is a 3.7 percent rise in gross private domestic investment which was revised up from the prior estimate. While residential investment declines a sharp 25.9 percent in the fourth quarter, nonresidential investment is up 3.3 percent. The drop in residential investment is less than previously reported, and is revised up substantially for nonresidential investment.
Government spending was little revised in the second estimate and is up 3.6 percent quarter-over-quarter. Net exports are revised to a larger deficit of $854.1 billion in the fourth quarter. The change in private inventories is revised up to $16.2 billion.
The change in private inventories made the largest contribution (1.47 percentage points) to GDP growth in the fourth quarter, followed by personal consumption expenditures (0.93). Gross private domestic investment was also a positive (0.66) as were government expenditures (0.63).
Personal consumption expenditures rose 1.4 percent in the second estimate for the fourth quarter 2022. Expenditures for durable goods are down 1.8 percent from the prior quarter, nondurables up 0.2 percent, and spending on services up 2.4 percent. The change reflects weakness in big-ticket hard goods like motor vehicles. Spending on soft goods is in part from declines in energy costs. Spending on services increased from demand and on higher prices where non-housing services inflation remains resistant to more restrictive monetary policy.
Offsetting some of the decline in personal spending is a 3.7 percent rise in gross private domestic investment which was revised up from the prior estimate. While residential investment declines a sharp 25.9 percent in the fourth quarter, nonresidential investment is up 3.3 percent. The drop in residential investment is less than previously reported, and is revised up substantially for nonresidential investment.
Government spending was little revised in the second estimate and is up 3.6 percent quarter-over-quarter. Net exports are revised to a larger deficit of $854.1 billion in the fourth quarter. The change in private inventories is revised up to $16.2 billion.
The change in private inventories made the largest contribution (1.47 percentage points) to GDP growth in the fourth quarter, followed by personal consumption expenditures (0.93). Gross private domestic investment was also a positive (0.66) as were government expenditures (0.63).
Market Consensus Before Announcement
The second estimate of fourth-quarter GDP, at 2.9 percent consensus growth, is expected to show no change from the first estimate. Personal consumption expenditures, at 2.1 percent growth in the first estimate, is expected to come in at 2.0 percent in the second estimate.
Definition
Gross Domestic Product represents the total value of the country's production during the period and consists of the purchases of domestically-produced goods and services by individuals, businesses, foreigners and government entities. Data are available in nominal and real (inflation-adjusted) dollars, as well as in index form. Economists and market players always monitor the real growth rates generated by the GDP quantity index or the real dollar value. The quantity index measures inflation-adjusted activity, but we are more accustomed to looking at dollar values.
Household purchases are counted in personal consumption expenditures -- durable goods (such as furniture and cars), nondurable goods (such as clothing and food) and services (such as banking, education and transportation). Private housing purchases are classified as residential investment. Businesses invest in nonresidential structures, durable equipment and computer software. Inventories at all stages of production are counted as investment. Only inventory changes, not levels, are added to GDP.
Net exports equal the sum of exports less imports. Exports are the purchases by foreigners of goods and services produced in the United States. Imports represent domestic purchases of foreign-produced goods and services and must be deducted from the calculation of GDP. Government purchases of goods and services are the compensation of government employees and purchases from businesses and abroad. Data show the portion attributed to consumption and investment. Government outlays for transfer payments or interest payments are not included in GDP.
The GDP price index is a comprehensive indicator of inflation. It is typically lower than the consumer price index because investment goods (which are in the GDP price index but not the CPI) tend to have lower rates of inflation than consumer goods and services. Note that contributions of each component, as averaged over the prior year, are tracked in the table below (components do not exactly sum to total due to chain-weighted methodology). Consumption expenditures, otherwise known as consumer spending, has over history been steadily making up an increasing share of GDP.
Household purchases are counted in personal consumption expenditures -- durable goods (such as furniture and cars), nondurable goods (such as clothing and food) and services (such as banking, education and transportation). Private housing purchases are classified as residential investment. Businesses invest in nonresidential structures, durable equipment and computer software. Inventories at all stages of production are counted as investment. Only inventory changes, not levels, are added to GDP.
Net exports equal the sum of exports less imports. Exports are the purchases by foreigners of goods and services produced in the United States. Imports represent domestic purchases of foreign-produced goods and services and must be deducted from the calculation of GDP. Government purchases of goods and services are the compensation of government employees and purchases from businesses and abroad. Data show the portion attributed to consumption and investment. Government outlays for transfer payments or interest payments are not included in GDP.
The GDP price index is a comprehensive indicator of inflation. It is typically lower than the consumer price index because investment goods (which are in the GDP price index but not the CPI) tend to have lower rates of inflation than consumer goods and services. Note that contributions of each component, as averaged over the prior year, are tracked in the table below (components do not exactly sum to total due to chain-weighted methodology). Consumption expenditures, otherwise known as consumer spending, has over history been steadily making up an increasing share of GDP.
Description
GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Importance
Gross domestic product is the country's most comprehensive economic scorecard.
Interpretation
When gross domestic product expands more (less) rapidly that its potential, bond prices fall (rise). Healthy GDP growth usually translates into strong corporate earnings, which bode well for the stock market.
The four major categories of GDP -- personal consumption expenditures, investment, net exports and government -- all reveal important information about the economy and should be monitored separately. One can thus determine the strengths and weaknesses of the economy in order to assess alternatives and make appropriate financial investment decisions.
Economists and financial market participants monitor final sales -- GDP less the change in business inventories. When final sales are growing faster than inventories, this points to increases in production in months ahead. Conversely, when final sales are growing more slowly than inventories, they signal a slowdown in production.
It is useful to distinguish between private demand versus growth in government expenditures. Market players discount growth in the government sector because it depends on fiscal policy rather than economic conditions.
Market participants view increased expenditures on investment favorably because they expand the productive capacity of the country. This means that we can produce more without inciting inflationary pressures.
Net exports are a drag on total GDP because the United States regularly imports more than it exports, that is, net exports are in deficit. When the net export deficit becomes less negative, it adds to growth because a smaller amount is subtracted from GDP. When the deficit widens, it subtracts even more from GDP.
Gross domestic product is subject to some quarterly volatility, so it is appropriate to follow year-over-year percent changes, to smooth out this variation.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Importance
Gross domestic product is the country's most comprehensive economic scorecard.
Interpretation
When gross domestic product expands more (less) rapidly that its potential, bond prices fall (rise). Healthy GDP growth usually translates into strong corporate earnings, which bode well for the stock market.
The four major categories of GDP -- personal consumption expenditures, investment, net exports and government -- all reveal important information about the economy and should be monitored separately. One can thus determine the strengths and weaknesses of the economy in order to assess alternatives and make appropriate financial investment decisions.
Economists and financial market participants monitor final sales -- GDP less the change in business inventories. When final sales are growing faster than inventories, this points to increases in production in months ahead. Conversely, when final sales are growing more slowly than inventories, they signal a slowdown in production.
It is useful to distinguish between private demand versus growth in government expenditures. Market players discount growth in the government sector because it depends on fiscal policy rather than economic conditions.
Market participants view increased expenditures on investment favorably because they expand the productive capacity of the country. This means that we can produce more without inciting inflationary pressures.
Net exports are a drag on total GDP because the United States regularly imports more than it exports, that is, net exports are in deficit. When the net export deficit becomes less negative, it adds to growth because a smaller amount is subtracted from GDP. When the deficit widens, it subtracts even more from GDP.
Gross domestic product is subject to some quarterly volatility, so it is appropriate to follow year-over-year percent changes, to smooth out this variation.
