U.S. GDP Growth Halves to 2.6% in Q4; 2014 Roughly Steady

Real GDP growth last quarter slowed to 2.6% (AR, 2.5% y/y) from 5.0% in Q3. For all of 2014, growth of 2.4% compared to 2.2% and 2.3% during the prior two years. The latest gain fell short of a 3.3% rise in the Action Economics Forecast Survey.    

Overall growth in final sales decelerated to 1.8% (2.2% y/y) from 5.0% as net export deterioration sapped one percentage point from growth, reversing its addition in Q3. The subtraction occurred as imports grew at an 8.9% rate (5.3% y/y), outpacing export growth of 2.8% (2.0% y/y). Working the other way, faster inventory accumulation raised GDP growth last quarter by 0.8 percentage points.

Growth in domestic final demand slowed sharply to 2.8% (2.8% y/y) from 4.1%. Holding back growth was a lessened 1.9% rise (5.5% y/y) in business fixed investment, down from 8.9% in Q3. The slowdown reflected a 1.9% decline (+4.7% y/y) in equipment spending, off from double-digit growth in the prior two quarters. Government spending also declined 2.2% (+0.7% y/y), held back by a 12.6% drop (-0.4% y/y) in defense. State & local government spending growth was stable at 1.3% (1.1% y/y).

Faster growth in consumer spending picked up some of this slack. A 4.1% rise (2.8% y/y) in consumption was the strongest since Q1 2006. Quicker 4.4% growth (2.3% y/y) in spending on nondurables reflected a 13.4% rise (3.9% y/y) in apparel and a 12.3% gain (2.9% y/y) in gasoline & fuel oil, spurred by lower prices. Services spending also picked up to 3.7% (2.1% y/y) from 2.5%. It was sparked by a 6.0% jump (3.7% y/y) in restaurants & accommodations as well as a 5.9% surge (0.7% y/y) in recreation. Durable goods purchases eased to 7.5% growth (8.4% y/y) from 9.2%. Motor vehicles & parts purchases slowed to 6.4% (10.4% y/y) from 11.2% though spending on furnishings & household durables remained firm at 5.7% (6.3% y/y).

Residential investment also grew at a slightly quicker 4.1% rate last quarter (2.6% y/y), though this compares to double-digit growth in 2012 & 2013.

The GDP chain price index was nearly unchanged (1.2% y/y) following a 1.4% rise. The personal consumption price index fell at a 0.5% rate (+1.1% y/y). A 6.2% decline in the nondurable price index (-0.3% y/y) added to 3.6% decline (-2.6% y/y) in the durables index. The services price index rose at a stable 2.0% rate (2.2% y/y). The PCE price index excluding food & energy increased at a 1.1% rate (1.4% y/y), its weakest rise Q2'13

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

Components of U.S. Financial Sector Growth, 1950-2013 from the Federal Reserve Bank of New York can be found here.

Chicago purchasing managers indicated that their January Business Barometer Index ticked higher to 59.4 but remained down from 64.5 reached three months ago. The reading fell short of expectations for 57.9 in the Action Economics Forecast Survey. Haver Analytics constructs an ISM-Adjusted Index, comparable to the overall ISM index to be released Monday. Our figure declined to 56.2, the lowest level in six months. During the last ten years, there has been a 62% correlation between the adjusted Chicago Purchasing Managers index and real GDP growth.

The new orders index improved slightly to 61.6 but remained well below the high of 70.8 in May. The order backlog figure also rose to 51.9 and remained under the 59.6 high last May. Employment improved to 60.1, its highest level since November 2013. During the last ten years, there has been an 82% correlation between the employment figure and the m/m change factory sector employment. The production series also improved moderately. Offsetting these gains was a collapse in the inventories number to 40.1, its lowest level since July 2013. The supplier delivery index also fell to 54.9, indicating the quickest delivery speeds in six months.  

The index of prices paid collapsed to 44.2, the lowest point since the end of the recession in 2009. Only 11 percent (NSA) of respondents reported paying higher prices while 22 percent paid less.

The MNI Chicago Report is produced by MNI/Deutsche Borse Group in partnership with ISM-Chicago. The survey covers a sample of over 200 purchasing professionals in the Chicago area with a monthly response rate of about 50%. The ISM-Adjusted headline index is calculated by Haver Analytics using these data to construct a figure using the ISM methodology. The figures can be found in Haver's SURVEYS database. The Consensus expectations figure is available in AS1REPNA.