The downward revision to fourth-quarter GDP growth to 2.3% annualised, compared with the initial 3.2% estimate, was largely due to smaller positive contributions from durables consumption, net exports and inventories, whereas the positive contribution from business investment was actually revised higher. More generally, even a gain of only 2.3% is still impressive in a quarter when the Federal government shutdown resulted in a 5.6% drop in public sector spending, which subtracted more than 1.0% ppts from overall GDP growth.
Durable goods consumption is now estimated to have increased by a more modest 2.5% in the fourth quarter, down from the initial 5.9% estimate. With the bad weather hitting motor vehicle sales hard, we anticipate another modest gain in the first quarter. Net exports are now assumed to have added 1.0% ppt to GDP growth, rather than the initial contribution of 1.3%. Inventories added 0.1%, down from the initial 0.4% estimate.
The good news is that business investment increased by 7.3%, revised up from the initial estimate of a 3.8% gain. that gain helped to offset an 8.7% decline in residential investment, which was hit by the drop back in existing home sales that has reduced brokers’ commissions.
