The Commerce Department issued its eagerly awaited revision of fourth-quarter gross domestic product earlier this morning, and the results were not what the economic bulls had either wanted nor expected.
Specifically, after the nation's economic output had contracted by a surprising 0.1% in the initial read on final-quarter GDP issued a month ago, expectations had been that this metric would be revised upward. And it was, only by considerably less than the expected 0.5%.
Meanwhile, the slight upward revision in GDP was based on a nominally better showing on the export front and the corresponding importation of fewer goods from abroad. Exports add to GDP; imports detract from the overall output of goods and services, or GDP.
As for the latest report, the growth rate was the slowest since the first quarter of 2011. Most worrisome, this scant rate of increase is well below what is likely needed to materially bring down the current 7.9% unemployment rate. The latest figures on non-farm payrolls and the jobless rate will be released on Friday March 8th.
As to other specifics in the report, the weak end to 2012 was largely brought about by a slowdown in inventory accumulation and a sharp drop in military spending. Those rather unusual events are likely to be less in evidence in the current period. Thus, we would expect a more tangible rate of business improvement to evolve in the present three months, with GDP probably rising by 1%-2%, even with the feared sequestrations, or mandated budget cuts, apparently set to go into effect tomorrow, as the President and the Republicans in Congress continue to be at odds on how to proceed with the budget.
On a brighter note, and one of the reasons that we believe growth will be much more vigorous in the first quarter is that consumer spending picked up by a solid 2.1% in last year's closing stanza. As consumer spending accounts for upwards of 70% of aggregate economic output, such a performance augurs well for the economy going forward. Data issued thus far in 2013, meantime, suggest that the recent pace of consumer activity will more or less persist in the early going this year.
Finally, the 1.55 percentage points that the lesser accumulation of inventories took off of fourth-quarter GDP (a bit more than initially estimated) will likely be largely offset in the current quarter, as those depleted stocks will need to be rebuilt. So, all in all, while this was a disappointing report, the seeds for some improvement in the economy have likely been planted, and we should have a gradually better harvest as the year proceeds.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.