| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Quarter over Quarter - Annual Rate | 3.3% | 3.2% to 3.4% | 3.2% | 3.3% |
| Personal Consumption Expenditures - Annual Rate | 2.8% | 2.8% to 2.8% | 3.0% | 2.8% |
Highlights
The second estimate of fourth quarter GDP puts growth at up 3.2 percent, a negligible downward revision from up 3.3 percent in the advance estimate. The consensus in the Econoday survey of forecasters was for growth of up 3.3 percent within a narrow range of 3.2 percent to 3.4 percent. Forecasters anticipated very little revision in the second estimate where revisions were anticipated to mostly offset one another.
Importantly, personal consumption expenditures are revised higher to up 3.0 percent in the fourth quarter after the advance estimate of up 2.8 percent. While spending on durable goods is revised down to up 3.2 percent from up 4.6 percent in the advance report and nondurables spending revised a tad lower to up 3.3 percent after up 3.4 percent, spending on services is revised up to a 2.8 percent increase from up 2.4 percent. Government consumption expenditures are revised substantially higher to up 4.2 percent after up 3.3 percent in the advance report. Both personal and government consumption expenditures made large positive contributions to growth at 2.00 and 0.73, respectively.
Although gross investment is revised down to up 0.9 percent in the second estimate after up 2.1 percent in the advance estimate and made a smaller positive contribution at 0.17 percentage points, fixed investment increased 2.5 percent after 1.7 percent in the advance report and a positive contribution of 0.43 points. There are gains for both nonresidential and residential fixed investment that may reflect some spending undertaken during a dip in interest rates and in anticipation of rates increasing again in the new year. Nonresidential investment is revised to up 2.4 percent in the second estimate after up 1.9 percent in the advance report. Residential investment is now up 2.9 percent in the fourth quarter after up 1.1 percent in the advance estimate.
Net exports have a slightly smaller deficit in the fourth quarter than first reported and are now at minus $778.7 billion, revised from $781.1 billion. The change in private inventories is smaller than first reported and is $84.8 billion in the second estimate after $106.9 billion in the advance estimate. Net exports made a positive contribution of 0.32 in the second estimate. The contribution from the change in inventories is now negative at minus 0.27, revised down from a narrow positive of 0.07 in the advance report.
The US economy ended the fourth quarter 2023 on a strong note despite forecasts of a slowing in growth. In large part, growth has been maintained by solid consumer spending that reflects greater confidence that inflation is coming down and in turn, greater spending power, especially where incomes are rising. The GDP Nowcasts for the first quarter 2024 are averaging around up 2.4 percent. While this is slower growth than in the fourth quarter 2023, it remains above the Fed's longer-run forecast of up 1.8 percent. Fed policymakers will not yet deem this as a soft landing after the swift run up in interest rates that characterized March 2022 to July 2023, but so far the economy has avoided a damaging recession.
Importantly, personal consumption expenditures are revised higher to up 3.0 percent in the fourth quarter after the advance estimate of up 2.8 percent. While spending on durable goods is revised down to up 3.2 percent from up 4.6 percent in the advance report and nondurables spending revised a tad lower to up 3.3 percent after up 3.4 percent, spending on services is revised up to a 2.8 percent increase from up 2.4 percent. Government consumption expenditures are revised substantially higher to up 4.2 percent after up 3.3 percent in the advance report. Both personal and government consumption expenditures made large positive contributions to growth at 2.00 and 0.73, respectively.
Although gross investment is revised down to up 0.9 percent in the second estimate after up 2.1 percent in the advance estimate and made a smaller positive contribution at 0.17 percentage points, fixed investment increased 2.5 percent after 1.7 percent in the advance report and a positive contribution of 0.43 points. There are gains for both nonresidential and residential fixed investment that may reflect some spending undertaken during a dip in interest rates and in anticipation of rates increasing again in the new year. Nonresidential investment is revised to up 2.4 percent in the second estimate after up 1.9 percent in the advance report. Residential investment is now up 2.9 percent in the fourth quarter after up 1.1 percent in the advance estimate.
Net exports have a slightly smaller deficit in the fourth quarter than first reported and are now at minus $778.7 billion, revised from $781.1 billion. The change in private inventories is smaller than first reported and is $84.8 billion in the second estimate after $106.9 billion in the advance estimate. Net exports made a positive contribution of 0.32 in the second estimate. The contribution from the change in inventories is now negative at minus 0.27, revised down from a narrow positive of 0.07 in the advance report.
The US economy ended the fourth quarter 2023 on a strong note despite forecasts of a slowing in growth. In large part, growth has been maintained by solid consumer spending that reflects greater confidence that inflation is coming down and in turn, greater spending power, especially where incomes are rising. The GDP Nowcasts for the first quarter 2024 are averaging around up 2.4 percent. While this is slower growth than in the fourth quarter 2023, it remains above the Fed's longer-run forecast of up 1.8 percent. Fed policymakers will not yet deem this as a soft landing after the swift run up in interest rates that characterized March 2022 to July 2023, but so far the economy has avoided a damaging recession.
Market Consensus Before Announcement
Consensus for the second estimate of fourth-quarter GDP is no change at the first estimate's 3.3 percent. Personal consumption expenditures are also expected to be unchanged at 2.8 percent.
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.
