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Fourth Quarter GDP Up to 3.2% – Likely to be Revised Further Up

The Bureau of Labor Statistics issued the advance estimate of 4Q2011 Gross Domestic Product (GDP) showing a 3.2% rise.  Like warnings on cigarette packs, deep analysis of these advance numbers likely will draw conclusions which the later releases will nullify.

The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency.  The “second” estimate for the fourth quarter, based on more complete data, will be released on February 25, 2011.

Econintersect, only gives cursory analysis of advance estimates as many tables necessary for detailed estimates are not issued.  The press release stated in part:

The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, and nonresidential fixed investment that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the fourth quarter primarily reflected a sharp downturn in imports, an acceleration in PCE, and an upturn in residential fixed investment that were partly offset by downturns in private inventory investment and in federal government spending and a deceleration in nonresidential fixed investment.

Personal consumption is at post-Great Recession high according to the GDP data – and the last month of the year (where the data would be most sketchy) was particularly strong – leading Econintersect to believe the later 4Q2011 GDP releases will raise this advance estimate number of 3.2%.

The monster drag on 4Q2011 GDP was Private Domestic  Investment which completely nullified the tailwinds from the improved trade balance in 4Q.

Table 1.1.2. Contributions to Percent Change in Real Gross Domestic Product

Seasonally adjusted at annual rates

The Bureau emphasized that the fourth-quarter advance estimate released today is based on
source data that are incomplete or subject to further revision by the source agency (see the box on page
4).  The "second" estimate for the fourth quarter, based on more complete data, will be released on
February 25, 2011.

With private investment (mostly inventory changes) and net export activity essentially canceling each other, the GDP growth in 4Q/2010 was essentially the result of increased consumer activity.  The recovery needs to see growth in private investment to gain strength.

The bulk of the inventory changes comes down to IVA – Inventory Value Adjustment.  This is a black box activity – and as soon as Econintersect gets an explanation of the reason for this particular adjustment – we will pass it along.  Here is the  NIPA table for Change in Private Inventories by Industry:


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