Friday, March 25, 2011

4Q 2010: Third GDP Report

This is a condensed version of a report from Econoday:
It turns out that the economy at the end of 2010 was about as strong as most had expected all along. Fourth quarter GDP growth was bumped back up to 3.1 percent annualized growth from the second estimate of 2.8 percent. The latest estimate came in slightly higher than the consensus forecast for 3.0 percent. As with the prior estimate, the fourth quarter was still stronger than the third quarter pace of 2.6 percent.

The upward revision to fourth quarter growth primarily reflected stronger inventory investment, nonresidential structures, equipment & software, and residential investment. Downward revisions were seen in net exports and government purchases.

The latest estimates for GDP and components indicate that the economy had moderately strong forward momentum at the end of 2010. More recent monthly numbers show overall momentum continuing but very mixed by sector with manufacturing, export, and consumer sectors leading growth and with housing, commercial real estate, and state & local government sectors weighing on growth.

For an alternative perspective, John Williams at Shadow Government Stats made this observation:
BEA’s “Third” Guesstimate on Fourth-Quarter 2010 GDP Was Weaker Though Stronger.  The second-revision to the estimate of fourth-quarter 2010 GDP, though to the upside, was largely statistical noise.  To the extent the growth was stronger (annualized 3.1% versus 2.8%), the news was not positive.  It reflected a downward revision to consumption with a more-than-offsetting upside revision to inventory change.  Unwanted inventory buildup usually is offset at some point with lower production.

He also points out that "GDP reporting remains the least meaningful and most heavily gimmicked/politicized of the major economic series, at least in the first year or so of reporting.  The next round of GDP annual benchmark revisions, which should show downside revisions to recent economic history, is due for publication on July 29th."