The US economy grew 3.2% in Q4 in real terms vs expectations of 3.5%. Nominal GDP was well below forecasts, rising just 3.5% vs expectations of 5.1% as the price deflator was up only .3% vs an expected 1.6% rise. Personal consumption was up 4.4%, .4% better than estimated. Trade also added to growth as exports rose while imports fell. Inventories were a drag, taking out almost 4% pts out of GDP and Gov’t spending was also a drag, by a modest .6%. Real final sales, which take out the influence of inventories, rose a solid 7.1% but in part because of a much less than expected inflation rate which will likely change in 2011. Spending on equipment and software rose by 5.8%, the slowest in 5 Q’s but the past 4 were up sharply. Residential construction rose 3.4%, the 1st up Q since Q3 ’09. Bottom line, the market likes the Real final sales figure but the price deflator was well below estimates where Nominal GDP was mediocre.

To highlight the contribution of a much less than expected price deflator to the GDP report, if it came in as expected at up 1.6% (instead of actual .3%), REAL GDP would have been reported at 1.9%.

Category: MacroNotes

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One Response to “Q4 GDP, real final sales great but deflator deflates”

  1. rktbrkr says:

    Inventories giveth and inventories taketh away, wonder how many Qs of taking away are in store.

    Gov spending was down, thats what the Republicans wanted! Time to slow down the very modest recovery. Stimulus is playing out and state & local govs are virtually BK, lots more layoffs and furloughs coming. This recovery will be moving forward with a couple brakes on. Or maybe it’ll be dead in the water, the double dip nobody expects anymore