February 23, 2023
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The revised estimate of fourth quarter GDP growth was 2.7% compared to a preliminary estimate of 2.9% which compares to a 3.2% growth rate in the third quarter.
Final sales, which is GDP excluding the change in business inventories, rose 1.2% in the fourth quarter after having jumped 4.5% in the third quarter. Given an increase in GDP of 2.7% and a 1.2% increase in final sales, it means that the increase in inventories added 1.5% to GDP growth in the fourth quarter.
Final sales to domestic purchasers which excludes both the change in inventories and trade rose 0.7% in the fourth quarter after having climbed 1.5% in the third quarter. Given that final sales rose 1.2% in the fourth quarter while final sales to domestic purchasers rose 0.7%, then trade added 0.5% to GDP growth in the fourth quarter.as the deficit for net exports narrowed with exports declining 1.6% while imports fell by 4.2%.
Consumption spending rose 1.4% in the fourth quarter after climbing 2.3% in the third quarter. Consumers continue to spend at a moderate pace despite higher interest rates and surging inflation. Spending on goods fell 0.5% in the fourth quarter. Spending on services climbed by a 2.4% as noteworthy gains were reported in numerous categories.
Residential investment plunged by 25.9% in the fourth quarter after falling 27.1% in the third quarter after diving 17.8% in the second quarter Housing is taking the brunt thus far of higher mortgage rates and soaring home prices. However with mortgage rates having recently fallen from 7.0% to 6.3% and home prices declining rapidly, it is likely that this sector hit bottom in the fourth quarter.
The foreign sector as measured by the deficit for real net exports narrowed by $30 billion in the fourth quarter to $1,238.4 billion after narrowing by $162 billion in the third quarter. Exports fell 1.6% in the fourth quarter while imports sank by 4.2%.
.Federal government spending rose 5.9% in the fourth quarter after gaining 3.7% in the third quarter. Defense spending rose 2.2%, while non-defense spending rose 10.8%.
We expect GDP to expand at a slow but positive pace of 1.4% in 2023.. The economy keeps cranking out jobs and wages keep rising which will boost consumer income and spending. Real interest rates remain negative so they will continue to boost the economy. Housing has been hit hard but with home prices falling rapidly it should soon begin to rise. The economy will continue to chug along at a slow pace until such time as the Fed boosts the funds rate above the inflation rate.
Stephen Slifer
NumberNomics
Charleston, SC
Mr. Slifer –
The fed in last 3 months since the September spike has injected approximately $60 billion/month into the “repo” market, and plans to potentially add as much as another half trillion by mid January, according to reports in the Financial Times. Mr. Powell rejected comparisons of this with earlier Quantitative Easing, insisting it was different. Since the repo market is for overnight or short term loans, one assumes these massive amounts will be repaid promptly, though there has been no mention of that in the papers. Such massive amounts of money would seem to contribute to the bullish equity markets we’re seeing. Can you educate me as to how these injections of credit influence the market, GDP, etc?
Hi Frank,
Thanks for your comment and sorry for the delayed response. Your question is not an easy one to answer so rather than a lengthy explanation here I will respond to your personal e-mail address. Thanks for your question. it is a good one.
Steve
Steve –
The second graph in this section, “Final Sales”, has the x-axis mislabeled in regard
to the applicable dates.
Hi Frank. Merry Christmas. You are right. The data shown are for the dates I wanted, but somehow the x-axis was messed up. I changed it in the original. Thanks for the catch.
Steve