Economic Growth Revised Down to 2.8%

The Commerce Department reported that fourth quarter real economic growth in the U.S. slowed from an annual rate of 3.2 percent to 2.8 percent on broad-based downward revisions. This came as something of a surprise to analysts as consensus estimates were for upward revisions to about a 3.4 percent rate.

Both government spending and consumer spending were lower than previously thought, government outlays falling at a 1.5 percent rate rather than 0.6 percent and consumer spending increasing at a rate of 4.1 percent rather than 4.4 percent. While consumer spending rose at the fasted pace since before the recession, concerns are now mounting about the impact of recently rising energy prices and the effect this could have on stock prices and consumer confidence, two keys to the late-2010 surge in growth.

Business inventories, one of the driving factors since the recession ended in 2009, subtracted 3.7 percentage points from the Q4 growth rate and, while many analysts thought this figure would be revised higher, it was unchanged from the advance estimate provided a month ago. The third and final reading on fourth quarter growth will be reported at the end of March and the first look at Q1 GDP will be provided in late-April.

Tim Iacono

Iacono Research.com