Insights from the GDP Report
According to the Bureau of Economic Analysis:
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 3.5 percent in the fourth quarter of 2006, according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent.
It sounds like a sharp acceleration unless you know how much the seasonal adjustments tend to distort things, as we have pointed out with regard to a variety of economic indicators, including employment, durable goods and GDP. Ah, GDP. Here is how it looks by comparing the fourth quarter to last year’s fourth quarter without adjustment (since the fourth quarter was in the same season both years.)
Like the seasonally adjusted numbers, the unadjusted report shows a decline in Q3 GDP (the bars) and a resurgence in Q4. However, unlike the adjusted numbers neither seems very significant. If the point of seasonal adjustment is to make the data more meaningful, the job isn’t getting done. What the unadjusted data does show, however, is that business spending on equipment and software is slowing down significantly, not withstanding the acceleration in overall GDP for the fourth quarter. Looking at the components of GDP further clarifies this point:
Private domestic investment (business spending, primarily) cut a full two percentage points from GDP growth. It is fortunate that other components, particularly net exports, grew so much.
Finally, do the data indicate that concerns over the housing slowdown and its potential impact on consumer spending are unwarranted? Here the picture is mixed. Housing is acting as less of a drag on overall GDP:
However, the year/year decline continues to worsen.
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