Inventories And Low Deflator Boost Low GDP Estimate

The Numbers 
 As a quick reminder, the classic definition of the GDP can be summarized with the following equation 

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows 

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Summary and Commentary 
 In their prior report that covered the pre-election economy, the BEA told us that the US GDP was growing at a 3.53% annualized rate -- a "happy days are here again" kind of number. Now we are told that during the fourth quarter those happy numbers were essentially halved. And even that headline may have been optimistic: 

  • The BEA's own "bottom line" final sales growth rate dropped over 2% and was below 1% (+0.87%) -- once rapidly growing inventories were factored out.
  • The inflation neutralizing deflator they used (+2.12%) was materially below the inflation rate recorded by the BEA's sister agency, the Bureau of Labor Statistics (+3.41%). Using the BLS data to deflate the numbers also results in a sub 1% growth rate (+0.62%).
  • We can expect the trade numbers to change materially in the next two monthly revisions.
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