Consumer Spending Slows, Pushing GDP Lower

Consumer spending is the central driver of the economy but is slowing, at least it was during the fourth quarter when GDP rose only at a 0.7 percent annualized rate. Final demand rose 1.2 percent, which is the weakest since first quarter last year but is still 5 tenths above GDP.

Spending on services, adding 0.9 percentage points, was a leading contributor to the quarter as was spending on goods, at plus 0.5. Residential investment, another measure of consumer health, rose very solidly once again, contributing 0.3 percentage points. Government purchases added modestly to growth.

The negatives are on the business side especially those facing foreign markets. Net exports pulled down GDP by 0.5 percentage points. Non-residential investment pulled down GDP by more than 0.2 percentage points. Reduction in inventory investment, which the FOMC warned about on Wednesday, pulled the quarter down by 0.5 percentage points.

Price data are not accelerating, at plus 0.8 percent for the GDP price index which is the lowest reading since plus 0.1 in the first quarter last year. The core price reading is only slightly higher, at plus 1.1 percent which is also the weakest reading in a year.

There are definitely points of concern in this report, especially the weakness in exports and business investment, but it's the resilience in the consumer, despite a soft holiday season, that headlines this report and should help confirm faith in the domestic strength of the economy.

Recent History Of This Indicator:
Sharp slowing is the Econoday consensus for the first estimate of fourth-quarter GDP, to plus 0.9 percent from the third-quarter's plus 2.0 percent. A widening in the trade gap and slowing in inventory accumulation are expected to have held down growth. Personal spending, following the lackluster holiday shopping season, is also expected to have slowed. But residential investment, reflecting strength in housing, is expected to be a positive.