After three quarters in a row that averaged roughly 1.2%, the fourth quarter real GDP grew 2.8%, a bit below expectations of 3.0%. Since the price deflator was up just .4% versus the estimate of 1.9%, nominal GDP (measure of growth not adjusted for inflation) was up 3.2% versus the estimate of 4.9%.
Personal consumption rose 2.0%; fixed investment rose 3.3%, helped by a 5.2% increase in equipment spending and residential construction rose by 10.9%. Government spending was a drag on GDP growth lead by a 12.5% decline in national defense spending. State and Local government spending fell by 2.6%. Inventories added roughly 2% to GDP growth, but final sales rose just .8% versus 3.2% in the third quarter. This shows that inventory rebuild played a large part in the fourth quarter GDP increase.
Bottom line is the economic environment continues to be mixed, but positive. We have to watch the European slowdown for potential impact on our domestic recovery.
