January 25, 2024

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The preliminary estimate of fourth quarter GDP growth was 3.3%..  That compares to a 4.9% increase in the third quarter.  The consensus had been for an increase of about 2.0%. While the perception is that the economy is slowing down, it is hard to find much evidence to support that notion in data for the fourth quarter.

Final sales, which is GDP excluding the change in business inventories, rose 3.2% in the fourth quarter   Given an increase in GDP of 3.3% and a 3.2% increase in final sales, the increase in inventories added 0.1% to GDP growth in the fourth quarter.

Final sales to domestic purchasers which excludes both the change in inventories and trade rose 2.7% in the fourth quarter after climbing 3.5 in the third quarter..  With a 3.2% increase in final sales and a 2.7% increase in final sales to domestic purchasers, the trade component added 0.5% to GDP growth in the fourth quarter as exports rose 6.3% and imports rose 1.9%.

Consumption spending gained 2.3% in the fourth quarter after having jumped jumped 3.1% in the third quarter.  Consumers continue to spend at a moderate pace despite higher interest rates and  still rapid inflation.  Spending on goods rose 3.8% in the third quarter while spending on services climbed by 2.4%.

Nonresidential investment rose 1.6% in the fourth quarter after increasing 1.4% in the third quarter.  Spending on structures rose 3.2%.  Equipment spending rose 1.0%.   In today’s world firms need to invest in technology that will allow them to survive difficult times, and/or help them expand their production and delivery functions to meet surging demand.  Intellectual property rose 2.1% in the fourth quarter.    In the past four quarters spending on intellectual property has risen 2.6%.

Residential investment rose 1.1% in the fourth quarter after having climbed 6.7% in the third quarter.  Housing took the brunt of higher mortgage rates and soaring home prices and the recent upturn signals that this category has finally hit bottom.  With current homeowners reluctant to put their house on the market and the supply of homes on the market at an all-time record low level, potential home buyers have turned to new homes where supply is more plentiful as an alternative.  Builders have been trying to ramp up production, but shortages of labor and difficulty in finding sizeable lots to develop means that the increases in this category in the quarters ahead may be limited.

The foreign sector as measured by the deficit for real net exports narrowed by $22.5 billion in the fourth quarter to $908.2 billion after having widened by $2.5 billion in the third quarter. Exports tose 6.3% in the third quarter while imports climbed by 1.9%.

.Federal government spending rose 2.5% in the fourth quarter after having jumped 7.1% in the third quarter.  Defense spending rose 0.9% while nondefense spending gained 4.6%.

We expect GDP to expand at about a 1.5% pace in the first two quarter of this year.  The economy keeps cranking out jobs and wages keep rising which will boost consumer income and spending.

Stephen Slifer

NumberNomics

Charleston, SC