GDP Q4 Advance Estimate At -0.1%: A Shocking Slip Into Contraction

by: Doug Short

The Advance Estimate for Q4 GDP came in at minus 0.1 percent, A shocking surprise to the downside. The WSJ survey of fifty economists I posted yesterday called for a 1.6% print. The consensus I generally feature was for a 1.0 percent GDP, with's on estimate near zero at 0.1 percent. Hands down,'s call was closer to the mark than any I've seen.

Here is an excerpt from the Bureau of Economic Analysis news release:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.

The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4 and the "Comparisons of Revisions to GDP" on page 5). The "second" estimate for the fourth quarter, based on more complete data, will be released on February 28, 2013.

The decrease in real GDP in the fourth quarter primarily reflected negative contributions from private inventory investment, federal government spending, and exports that were partly offset by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

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

Final sales of computers added 0.15 percentage point to the fourth-quarter change in real GDP after adding 0.11 percentage point to the third-quarter change. Motor vehicle output added 0.04 percentage point to the fourth-quarter change in real GDP after subtracting 0.25 percentage point from the third-quarter change. [Full Release]

Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

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Here is a close-up of GDP alone with a line to illustrate the 3.2 average (arithmetic mean) for the quarterly series since the 1947, with the latest GDP revisions, this number had been at 3.3 for 14 quarters, but slipped to 3.2 as of Q2 of this year. I've also plotted the 10-year moving average, currently at 1.7. The current GDP has now removed us completely from either range.

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Here is the same chart with a linear regression that illustrates the gradual decline in GDP over this timeframe. The latest GDP number is above the approximate 2.1 of the regression at the same position on the horizontal axis.

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And for a bit of political trivia in this pre-election period, here is a look at GDP by party in control of the White House and Congress.

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In summary, the Q4 GDP Advance Estimate of minus 0.1 percent, is a shocking plunge into shallow contraction, a move that was quite unexpected by mainstream economists. On February 28th we'll get the Second Estimate, which often shows a significant revision from the Advance Estimate. Those of us who follow GDP closely will be on proverbial pins and needles waiting for the next update.