Fourth-Quarter GDP Revised Slightly Lower

There's very little change between the second and first estimates for fourth-quarter GDP, revised 1 tenth lower to an as-expected 2.5 percent annualized rate. Consumer spending is unchanged at a very strong 3.8 percent as downward revisions to spending on durables (down 4 tenths to a 13.8 percent rate) and nondurables (down 9 tenths to 4.3 percent) are offset by an upward revision to the largest category of service spending (up 3 tenths at 2.1 percent).

Residential investment gets a noticeable upgrade to a 13.1 percent rate from 11.6 percent in the first estimate while nonresidential investment is lowered by 2 tenths to 6.6 percent. These are both very solid and, like consumer spending, point to fundamental economic demand. Net exports are virtually unchanged in today's revisions, at a very sizable $652.2 billion and pulling down the quarter's headline GDP rate by 1.1 percentage points. Inventories are also a negative, slowing in the quarter to an $8.0 billion build from $38.5 billion in the third quarter and pulling down the headline by 0.7 points.

Another one of the positives in the quarter is government purchases which are revised marginally lower to 2.9 percent. This rate may become a positive wildcard in future quarters given the outlook for increased deficit spending. Another possible positive is inventory growth which is off to a fast start so far this quarter as businesses scramble to restock shelves amid strong demand.

Strength is definitely the message of this report, masked by the nation's trade imbalance and the quarter's inventory change excluding which GDP rose 4.3 percent, a reading that is unchanged from the first estimate. On the inflation front, the GDP price index rose 2 tenths in the quarter to a 2.3 percent rate which is down 1 tenth from the first estimate though the core, however, is revised 1 tenth higher to 2.2 percent which, in a hint of building pressures, marks a 6 tenths acceleration from the third quarter.

Consensus Outlook:
The second estimate for fourth-quarter GDP is expected to come in at a 2.5 percent annualized rate vs 2.6 percent in the first estimate. The consumer is still likely to be the driver in the fourth quarter but looks to get trimmed slightly following downward revisions to retail sales. Consumer spending is expected to rise at a 3.7 percent pace vs 3.8 percent in the first estimate. The GDP price index is seen at a 2.4 percent rate.