Real GDP growth in the last quarter of last year (2013Q4) was marked down from an annualized growth rate of 3.2% to 2.4%, as per revisions reported today by the Bureau of Economic Analysis. That also means that growth towards the end of the year was notably slower than that of the third quarter, which clocked in at 4.1%.
Details are here, but the markdown was the result of downward revisions to inventories, consumer spending, exports (more on that in a moment), and state and local spending.
The slowdown from the third quarter was expected. Inventories gave back some of the buildup from Q3 and the government shutdown in October was also implicated. The deceleration in residential investment (new homes and home improvements) reflects a bit of slowing in the housing market in recent months, from higher mortgage rates, ongoing difficulty with credit access, and some price moderation. And unusually cold weather’s in there somewhere too.
All told, average growth in 2013, including today’s revision, was around 2%. This year, the expectation is we’ll hit something closer to 3%, due in no small part to diminished fiscal drag from the “do-less-harm” Congress. As you see in the figure below–it’s just average annual growth in real GDP–that’s pretty much the growth band of the recovery: 2-3%, by no means terrible, but a pretty persistent slog, and a pace that’s been insufficient to close the output gaps in growth and jobs that have been with us since the recession began in late 2007.
I’ve been traveling a bit and I’m seeing more activity, at least in the Bos-Wash corridor, but scratch the surface and you find that for most people, there’s a bit more work, but generally flat incomes and wages—today’s data show the real disposable income grew less than a percent last year, though corporate profits remain near all-time highs.
One other thing to keep an eye on. The combination of the Fed’s taper, capital flight from emerging markets (to safe havens like us), Japan’s and now perhaps even China’s efforts to lower their currency values, are all putting some upward pressure on the dollar. This hurts our net exports, and while NX was a significant plus in Q4, its contribution was marked down in the revision. We need to keep a close eye on our trade deficit this year: it would extremely unfortunate if relaxed pressure from fiscal drag was offset with increase pressure from a growing trade deficit.