4th Quarter GDP: Less Than Expected

The Bureau of Economic Analysis released the advance data for 4th quarter Gross Domestic Product this morning, and the number came in lower than most people anticipated.   

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.1 percent in the fourth quarter of 2004, according to advance estimates released by the Bureau of Economic Analysis.  In the third quarter, real GDP increased 4.0 percent.

According to Reuters,

The increase in fourth-quarter gross domestic product... was the weakest since a 1.9 percent pace in the first quarter of 2003. It also was below Wall Street economists' forecasts for a 3.5 percent rate of fourth-quarter expansion.

This bit of information, on the other hand, isn't much of a surprise:

The Commerce Department report showed exports of goods and services fell at the steepest rate in two years during the October-December fourth quarter while imports rose.

While the real growth numbers were softer than expected, average prices jumped.  Again from the BEA press release:

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 2.7 percent in the fourth quarter, compared with an increase of 1.9 percent in the third.

Of course, a little perspective on all of this is always useful.  While the overall price number was not great news, the "core" measure didn't look so bad.

Excluding food and energy prices, the price index for gross domestic purchases increased 1.9 percent in the fourth quarter, compared with an increase of 1.7 percent in the third.

Furthermore, there is this reminder from the Commerce department report:

The Bureau emphasized that the fourth-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency ...  The fourth-quarter "preliminary" estimates, based on more comprehensive data, will be released on February 25, 2005.

And the longer view from the Reuters story:

Despite the softer fourth quarter, GDP in 2004 advanced 4.4 percent, up from 3 percent in 2003 and the most robust since a 4.5 percent increase during 1999. Private-sector economists generally predict continued expansion in 2005 at around 3.5 percent, which is considered to represent the U.S. economy's long-term growth potential.

UPDATE: William Polley has more, including an especially interesting link to a St. Louis Fed chart documenting recent revisions in the GDP numbers.  General Glut comments too.