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Everything You Need to Know About the GDP Report

A nice pace of growth in the last quarter, but is it sustainable?


Today I want to talk about what may be the most important three-letter acronym when it comes to the U.S. economic recovery: GDP, which stands for Gross Domestic Product.

GDP is the broadest measure of a nation’s economic activity—adding up the total value of all goods and services produced in the U.S. This influential status update on the U.S. economy takes into account net exports, government spending, consumption, investment and inventory. Of course, out of these, the most important component is consumption, which accounts for about two-thirds of GDP.

The latest GDP report is the advance estimate for fourth-quarter GDP—which measures the U.S. economy’s progress over the third quarter. Because this is such an important report, the Commerce Department officially revises each quarter’s GDP estimates a total of four times: three during the quarter (advance, preliminary and final), as well as a final time once a year in July when the annual benchmark revisions are announced.

And what had the newswires buzzing Thursday is that the U.S. economy grew at an annual rate of 3.2% in the fourth quarter. Now that the last quarter’s data has been tallied, we know that the U.S. economy grew at a 1.9% pace in 2013. Notably, if you account for both the third- and fourth-quarters, the economy grew at the fastest pace since 2003–at a 3.7% pace.

In the fourth quarter, consumer spending was the primary driver of growth. Exports, inventories and state and local government spending also made position contributions. Meanwhile, growth was impeded by federal government cuts (due partly to the 16 day government shutdown) and flagging residential investment.

However, many economists expect the first quarter GDP report to be slower. That’s because inventory gains accounted for much of last quarter’s growth–if you omit private inventories, we get 2.8% fourth-quarter GDP growth.

So it appears that the U.S. economy is still recovering in fits and starts and that further Fed action is probably necessary to keep up the momentum.

Article printed from InvestorPlace Media,

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