Final Q4 GDP Revision Comes In At 5.6%, Total Real Debt To GDP 130.6%

Full GDP release from the BEA.

Key highlights:

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 5.6 percent in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.2 percent.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private inventory investment, an upturn in nonresidential fixed investment, an acceleration in exports, and a deceleration in imports that were partly offset by decelerations in PCE and in federal government spending.

Revision basis:

The third estimate of the fourth-quarter increase in real GDP is 0.3 percentage point, or $11.6 billion, lower than the second estimate issued last month, primarily reflecting downward revisions to nonresidential fixed investment, to private inventory investment, and to PCE.


The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 2.0 percent in the fourth quarter, 0.1 percentage point more than in the second estimate; this index increased 1.3 percent in the third quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 1.5 percent in the fourth quarter, compared with an  increase of 0.3 percent in the third.

The communist government:

Real federal government consumption expenditures and gross investment were unchanged in the fourth quarter, compared with an increase of 8.0 percent in the third. National defense decreased 3.6 percent, in contrast to an increase of 8.4 percent. Nondefense increased 8.3 percent, compared with an increase of 7.0 percent. Real state and local government consumption expenditures and  gross investment decreased 2.2 percent, compared with a decrease of 0.6 percent.

Current-dollar GDP

Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 6.1 percent, or $211.7 billion, in the fourth quarter to a level of $14,453.8 billion. In the third quarter, current-dollar GDP increased 2.6 percent, or $90.9 billion.

Total debt: $12.606 trillion. Debt to GDP: 87.2%. Adding $6.264 trillion in GSE debt which is explicitly backed and should be on the Treasury's book, the total debt is $18.87 trillion and the Total Adjusted Debt to GDP is 130.6%. Total on and off balance sheet debt to GDP: ridiculous.

Some views from Stone McCarthy:

The Bureau of Economic Analysis (BEA) reported a downward adjustment in its final estimate of Q4:09 GDP from last month's preliminary estimate. Fourth quarter GDP growth is now seen expanding at a 5.6% rate, 0.4% less rapid that last month's second or preliminary estimate of a 5.9% advance which itself was revised up from the first estimate of 5.7% growth reported in January. There were generally small but one-sided revisions to the several GDP components between this final report and the preliminary estimate and those adjustments netted out in aggregate to a downward revision of $11.6 billion. The lower level of Q4 GDP was largely due to a slightly faster pace of inventory liquidation and a lower estimate of nonresidential fixed investment. In sum, the revisions do not alter our view that the economy expanded at a tepid 2.5% rate in the nearly complete first quarter.

Given the modest magnitude of the downward revision to Q4 GDP, and given that these final revisions are released three months after the end of the quarter, and given that the revisions do not alter the economic outlook, the muted financial markets reaction to the revised data was warranted. This final GDP report provides no new insights about the economy. The February personal income and spending data to be released Monday will provide greater insight into how the economy is performing during the first quarter. The economy in the first quarter appears to have expanded at a tepid 2.5% rate. We see further recovery during 2010 at a subdued rate of about 2.0% to 3.0% as the impact of macro-economic stimulus, both monetary and fiscal, begins to lose strength.

Coming after the Federal Reserve's March 16 decision to maintain the essentially flat fed funds rate target of 0.0% to 0.25% and well before the next FOMC meeting on April 27 -28, these final fourth quarter GDP data will little influence on the conduct of monetary policy over the coming months. Incoming economic data pertaining to the first and second quarters of 2010 will determine the speed at which Fed officials begin to implement the exit strategy sometime in 2010. Given the ongoing weakness in the residential sector and the uneven nature of overall economic growth, we expect the Fed to hold interest rate policy steady for a while longer. Based on our forecast that Q1:09 GDP will expand at a 2.5% rate and may grow at a 2.5% rate during the second quarter, it is our expectation that the FOMC will hold the fed funds target range at 0% - 0.25% well into the second half of 2010.