2013 Fourth Quarter GDP Revision Improves Economic Outlook

by Laya Mallela ’17

Thursday, the U.S Department of Commerce released the final revision of U.S. economic growth for the fourth quarter of 2013. The press release stated that GDP grew by 2.6% in the last three months of 2013, as opposed to 2.4% previously reported in February. The revised growth rate is still lower than 3.2% rate predicted at the beginning of the quarter and slightly lower than recent analysts’ predictions of 2.7%. Yet, the .02% increase may be small, but has led to a more positive outlook of 2014 economic growth.

An increase in consumer spending accounted for most of the uptick. Personal consumption expenditures experienced a 3.3% increase in the fourth quarter of 2013, showing the healthiest growth in the category since the 4.3% increase in 2010.  Consumers spent more on both services and healthcare. Additionally, corporate profits contributed to the slightly higher GDP as they rose to $1.9 trillion, growing at an annual rate of 2.2% in the last three months of 2013. Moreover, business investments grew by 5.7%. While this growth rate is less than expected, it still shows that firms are investing to boost profit.

Furthermore, inventories, previously reported to have risen by $117.4 billion in the fourth quarter, were revised down to $111.7 billion. The revision in inventory gains will hopefully help move goods and not dampen future economic growth. Lastly, local and state governments spending did not fall as previously predicted.

However, even the revised GDP growth rate is smaller than the third quarter 2013 GDP growth rate of 4.1%. Several factors resulted in this lower growth rate. First, the government shutdown lowered consumer confidence. Also, government spending, about 40% of GDP, dropped by 5.2% due to reductions of defense and non-defense spending. An additional drag on growth was the decrease in housing investment by 7.9%. The drop, less than the expected 8.7% drop, is the first annual decline in housing investment in three years.

The overall implications of the GDP revision are positive. First, analysts now believe that the US economy had slightly more momentum heading into 2014. Forecasters predict that GDP growth will slow to 1.5% in quarter one of 2014, but rebound to a growth rate of above 3% for the rest of the year. The increase in the rate of consumer spending further supports the stronger economic growth predictions.  Consumer confidence is at healthy levels as well, leading analysts to believe consumer spending will increase as spring arrives.

Another economic bright spot is the slight improvement in the labor market. 175,00 jobs were created in February and initial jobless claims fell by 311,000 last week.  Furthermore, the four week moving average of jobless claims, a more reliable indicator of labor market health, fell to 318,000.

As the cold, bitter winter finally ends, analysts expect better economic gains in 2014. With the final revision in the fourth quarter GDP, analysts have a slightly better outlook of 2014 economic growth. Next week, the Labor Department will report on job creation and unemployment rate in March. Hopefully, these figures continue the positive economic outlook.

 

Sources:

http://abcnews.go.com/Business/wireStory/us-economic-growth-q4-revised-slightly-23079734

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

http://online.wsj.com/news/articles/SB10001424052702303325204579465060613770396?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702303325204579465060613770396.html

http://www.latimes.com/business/money/la-fi-mo-gdp-fourth-quarter-economy-20140327,0,4362206.story#axzz2xDWQHkBT

http://www.reuters.com/article/2014/03/27/us-usa-economy-gdp-idUSBREA2Q0XW20140327

http://www.nytimes.com/2014/03/28/business/economy/US-economic-growth-for-4th-quarter-revised-up.html

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