4th Quarter “Final” GDP Estimate 1.4% – Expect Revisions

Today the BEA released its third estimate of 4th Quarter 2015 GDP.

Fourth quarter GDP purportedly increased from 1.0% in the second estimate to 1.4% in the third.

The BEA used to label the three estimates as advance, preliminary, and final. Now it’s just 1-2-3. That was a good move because there is nothing final about any of this.

This July we will see GDP revisions dating back 10 years thanks to a BEA admitted processing error!

Let’s start with a look at what the economists thought heading into today’s GDP report. The Bloomberg Econoday Consensus for fourth quarter GDP was 1.0%, seasonally adjusted annualized (SAAR).

Q: How did the economists arrive at 1.0%?
A: They looked at the second (preliminary) estimate and accepted it.

In this case, I don’t blame them. GDP is nothing but a reporting pot-shot anyway.

Highlights

Real GDP came in stronger than expected in the fourth quarter, at an annualized plus 1.4 percent for the third estimate vs expectations for 1.0 percent. The second estimate was also 1.0 percent with the first estimate at plus 0.7 percent.

The third estimate got a boost from an upward revision for personal consumption expenditures which came in at a respectable 2.4 percent annualized rate for a 4 tenths increase from the prior estimate (a similar rate for the first quarter would be welcome). Residential fixed investment gave a 10.1 percent boost to the quarter, offset in part by a 2.1 percent decline on the non-residential side. Net exports cut 0.14 percent off the quarter, an improvement from minus 0.25 and 0.47 in the prior two estimates. Inventory cut 0.22 percent. Final sales came in at 1.6 percent, up 4 tenths from the initial estimate. Inflation was muted with the price index up 0.9 percent and the core up 1.3 percent.

Estimates for the first quarter are trending roughly at the 2 percent area, pending that is personal income and consumption data for February which will be posted Monday.

Recent History

The third estimate of fourth-quarter GDP is expected to come in unchanged from the second estimate at a plus 1.0 percent annualized rate. But gains for the quarterly services survey could give a boost to personal consumption expenditures which slipped to an annualized plus 2.0 percent in the second estimate vs 2.2 percent in the initial estimate. A gain here, even though it’s data for the fourth quarter, could improve the outlook for consumer spending. Other readings in the fourth quarter included weakness in non-residential investment that was offset by strength on the residential side. The GDP price index is expected to remain unchanged at plus 0.9 percent.