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Slower GDP Masks Consumer Strength

The Bureau of Economic Analysis this morning released a disappointing first estimate for the 2014 fourth-quarter real gross domestic product – the total value of this country’s finished goods and services. At 2.6 percent, it was roughly half of the 5.0 percent pace of growth in the third quarter. And it was about half a point below the consensus of analysts’ expectations.

But despite the disappointing headlines, there were a couple of positive points within the details.  Consumer spending, which accounts for two-thirds of GDP, accelerated in the final quarter to 4.3 percent, from 3.2 percent in the third quarter.

In addition, housing picked up a bit, to 4.1 percent from 3.3 percent in the previous quarter.

However, there were also some signs of weakness.  Business fixed investment slowed sharply to just a 1.9 percent gain, from 8.9 percent in the third quarter. Several of the equipment categories actually fell for the fourth quarter, offsetting gains in structures and intellectual property.

Exports slowed as well, falling to a 2.8 percent rate of growth, from a 4.6 percent gain previously.

Inventories added 0.8 percentage points to the 2.6 percent GDP number.

The weakest points were a sharp jump in imports, rising 8.9 percent, which subtracted 1.4 percentage points from GDP; and a 15.9 percent drop in federal defense spending that chopped 0.6 percentage points off the total GDP number.

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