Thursday, January 30, 2014

U.S. Economy Grew 3.2% in 4th Quarter

Real GDP growth slowed in the fourth quarter to 3.2% from 4.1% in the previous quarter. Although growth slowed slightly, the details of this report are strong, with consumption accelerating and driving growth. Net exports also improved notably, providing a strong boost to growth. These strong gains were offset by heavy fiscal drag, as the government shutdown in the fourth quarter slowed growth.

Consumption picked up heavily from the third quarter, growing 2.3%, a faster pace from the 1.4% growth in the third. Net exports also grew considerably at 1.3%, a big uptick from the 0.1% growth in the third quarter. Inventories, which tend to fluctuate from one quarter to the next saw a large rise in the third quarter and as a result growth was smaller in the fourth at 0.42%. Strong consumption and exports are a positive for future growth, as both are sustainable trends.

The government dragged on the economy by 0.9% in the fourth quarter. The BEA found that the reduction in work hours by federal employees reduced growth by 0.3%, however the full effects from the shutdown have yet to be quantified. Since the shutdown was a one-time event, the budget process is more stabilized for the next two years, and state and local finances are improving, the government will likely add to GDP growth in 2014.

Read the BEA release.

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