No room for reduction in Fed’s revised GDP value
The pace of economic growth in the third quarter may not have been as fast as initially expected, but nuances in the data cast doubt on premature predictions that the Federal Reserve will cut rates aggressively in the near term. reveals important insights.
of Secondary estimates of real gross domestic product (GDP) Growth in the fourth quarter of last year was expected to be unchanged from the initial forecast, which predicted the economy would grow at an annual rate of 3.3%. However, the Commerce Department announced Wednesday that it had revised the growth rate downward to 3.2%.
To put this into perspective, this is still Much faster than Wall Street expected before announcing initial forecasts in January. The consensus was that GDP would be reported to grow at 2% in the last three months of 2023.
The slight downward revision of the growth rate for the fourth quarter remained unchanged. full year numbers. Economic growth was 3.1 percent on a fourth-quarter basis and 2.5 percent on a full-year basis. This is the more common way of reporting GDP in the United States. (Both are reasonable ways to think about GDP growth.) This is a solid performance; Much higher growth is possible than the Fed considers sustainable In the long run.
Nominal growth rate The growth rate for the fourth quarter was revised upward to 4.9% from 4.8%. Given this, the average nominal growth rate from 2010 to 2019 was 4.1%. The pre-pandemic average before Trump took office was 4.8%. So we’re seeing nominal growth. Above average by modern standards.
US consumers still haven’t stopped shopping
household expenditureThe economic growth rate, the backbone of the economy, was even faster than initially expected, growing at 3% instead of the 2.8% originally reported. The contribution to growth in the fourth quarter was approximately 62.5%, up from the previous estimate of 57.9%. We already knew that consumer spending would be a big driver of economic growth in the second half of this year.Now we see that it was even bigger than we thought.
The composition of personal consumption has been revised in a way that is less favorable to the people. The story of disinflation.household expenditure Goods The actual rate of increase was 3.2%, revised downward from the initial estimate of 3.8%. This was due to a sharp decline in the growth rate of durable goods spending from 4.6% to 3.2%. As a result, durable goods purchases accounted for only 7.8% of growth, down from 10.9% in the previous estimate.
pace of service expenditure Growth went in the opposite direction. The revised rate was increased from 2.4% to 2.8%. As a result, household services spending is expected to account for 40 percent of overall growth in the fourth quarter, up from a previous estimate of 32.1 percent.
This is the proof of Consumer spending continues to shift from goods to services. That suggests that the change is unlikely to cause further disinflation. In fact, this is now likely to be contributing to inflation, as it means further demand pressure on services sectors that are difficult to expand.
The mother’s milk of economic growth: non-residential capital investment
The latest revisions further reinforce the impression that economic fundamentals are strengthening, which was one of the weaknesses in the initial estimates. Non-residential capital investment, revised upward from just 1.7 percent to a respectable, if not overly impressive, 2.4 percent. This suggests that even though companies were wary of overstocking, they did not roll back their growth plans in the fourth quarter of last year.
There were also significant upward revisions to some indicators of potential demand. Final sales of domestic products rose 3.5%, exceeding the January forecast of 3.2%. Final sale to domestic individual purchaser was revised upward to 2.9% from 2.6%, suggesting that underlying aggregate demand held up very well in the fourth quarter.
Finally, there has been some upward correction in inflation.of personal consumption price index This was an increase of 1.8% compared to the previous quarter, exceeding the expected 1.7%. Core inflation rose from 2.0% to 2.1%. Although these are small increases, they indicate that: Progress in curbing inflation last quarter was not as great as expected.. This means prices likely still had more momentum than expected earlier this year.
Although the latest GDP revisions do not raise any red flags that were not present after the first report, they do raise the following issues: There is no reason to think this report will give the Fed further room to cut rates. In the first half of this year.
