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Economy in Brief

U.S. 4Q GDP Growth Unrevised at 0.6%, Profits Fell
by Tom Moeller March 27, 2008

U.S. real GDP growth during 4Q '07 was unrevised, as expected, at 0.6% (AR). Growth during the last two quarters was down sharply from an average gain during the prior two periods of 4.4%.

Reported for the first time were corporate profits and overall earnings fell 3.3% from 3Q (+2.5% y/y). Profits of domestic nonfinancial corporations fell 4.3% (-0.0% y/y) for the second consecutive quarterly decline. The housing sector's meltdown reduced financial sector corporate profits by a much sharper 15.2% (-16.4% y/y) while those declines were offset somewhat by the strength of overseas earnings. They grew 16.4% (42.8% y/y).

In the GDP detail, improvement in the foreign trade deficit continued to add sharply to overall growth, as it did in the third quarter. 4Q imports are now shown to have declined at a little revised 1.4% (+1.0% y/y) rate. Export growth, however, was revised up to 6.5% (8.4% y/y).

The added addition to GDP growth from foreign trade was offset by a greater 1.8 percentage point subtraction from inventory decumulation.

Domestic demand growth was little changed as the gain in final sales to domestic purchasers is still estimated slower at 1.3%. The decline in residential construction was unrevised at a sharp 25.2% (-18.6% y/y) rate of decline. That reduced overall real GDP growth by 1.3 percentage points. Growth in business fixed investment grew a little revised 6.0% (7.1% y/y) as equipment spending slowed to a 3.1% (3.6% y/y) growth rate. Nonresidential construction during 4Q grew an accelerated 12.4% (15.1% y/y). Growth in real personal consumption was raised slightly to 2.3% (2.6% y/y).

Growth in the GDP chain price index was lowered slightly to a 2.4% (AR) gain. The PCE price index rose at a reduced 3.9% rate (3.4% y/y). Less food & energy consumer prices was taken down a notch to a 2.5% (2.1% y/y) growth rate. Prices of business fixed investment rose 1.1% (0.6% y/y) but residential investment prices fell at a 0.4% (+0.1% y/y) rate.

Protecting Homeowners and Sustaining Homeownership is this morning's speech by Fed Governor Randall S. Kroszner and it can be found here.

Monetary Policy Actions and Long-Run Inflation Expectations is from the Federal Reserve Board and it can be found here.

Chained 2000$, % AR 4Q '07  (Final) 4Q '07 (Preliminary) 4Q '07 (Advance) 3Q '07 Y/Y 2007 2006 2005
GDP 0.6 0.6 0.6 4.9 2.5 2.2 2.9 3.1
  Inventory Effect -1.8 -1.5 -1.3 0.9 -0.2 -0.3 0.1 -0.2
Final Sales 2.4 2.1 1.9 4.0 2.8 2.5 2.8 3.3
Foreign Trade Effect 1.0 0.9 0.4 1.4 0.8 0.7 -0.1 -0.2
Domestic Final Demand 1.3 1.2 1.4 2.5 1.9 1.8 2.7 3.3
Chained GDP Price Index 2.4 2.7 2.6 1.0 2.6 2.7 3.2 3.2
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