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Snap analysis: A miss, but better-than-expected GDP data
January 28, 2011 / 2:19 PM / 7 years ago

Snap analysis: A miss, but better-than-expected GDP data

WASHINGTON (Reuters) - For a worse-than-expected number, Friday’s U.S. GDP data looks surprisingly strong.

At first glance, the 3.2 percent growth rate for gross domestic product looks light, considering economists polled by Reuters expected a 3.5 percent pace.

However, the figures show consumer spending growing at the fastest rate in four years and international trade providing a surprisingly large lift. Both show an economy that is pulling more of its own weight, an important development as government stimulus spending fades.

For the Federal Reserve, which renewed its commitment earlier this week to buying $600 billion in government bonds, the report shows the economy ended 2010 with moderate strength and breadth, but not enough vigor to quickly bring down the 9.4 percent unemployment rate.

CONSUMER COME-BACK

* Personal consumption expenditures contributed slightly more than three percentage points to fourth-quarter growth. That fits with reports from retailers showing a decent holiday shopping season.

* Whether the spending holds up remains a big question mark. Many retailers remain cautious in their outlooks and report that consumers are still bargain-hunting. With gasoline prices rising, disposable income will be constrained.

* The biggest single drag on fourth-quarter growth was inventories, which subtracted 3.7 percentage points. That should quell any lingering concerns that businesses were piling up goods faster than consumers were willing to buy them.

* With inventories looking lean, a bit of rebuilding could boost 2011 growth.

TRADING UP

* The biggest surprise was in trade. Net exports added 3.44 percentage points to fourth-quarter growth, the biggest contribution since 1980.

* Imports were a positive, breaking a five-quarter string of negative readings. Because GDP measures domestic output, rising imports show up as a negative and falling imports are counted as a positive.

* The figures suggest a weakening U.S. dollar is helping to boost exports, a priority for President Barack Obama and part of the formula for rebalancing global growth.

GOVERNMENT ISSUE

* Government spending was a small drag, primarily because of state and local cutbacks.

* The federal government subtracted 0.01 percentage point from growth, barely registering in the minus column but still the first negative since the first quarter of 2009, when Obama’s initial stimulus package was passed.

* State and local governments subtracted 0.10 point from growth, still more evidence that budget crunches are putting a drag on the economy.

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