The Economy

Government Spending Decline Shaves Q4 GDP

National defense spending fell 12% in the fourth quarter of 2014, offsetting growth in personal expenditures and inventory investment.
Katie Kuehner-HebertFebruary 27, 2015
Government Spending Decline Shaves Q4 GDP

The country’s gross domestic product rose at an annual rate of 2.2% in the fourth quarter, according to revised numbers by the Commerce’s Dept.’s Bureau of Economic Analysis, a fall from the 2.6% rise initially reported.

The 2.2% increase reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, state and local government spending, private inventory investment, and residential fixed investment. Those were partly offset by a negative contribution from federal government spending, the BEA said in a press release on Friday.

A Bloomberg story said that the median forecast of 83 economists surveyed by the publication called for a 2% pace.

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“The economy is still chugging along pretty nicely,” Raymond James chief economist Scott Brown told Bloomberg. “We’re seeing better job growth, the drop in gas prices is really going to be beneficial for consumers and small businesses, and that should help the pace of growth to pick up.”

Real personal consumption expenditures increased 4.2% in the fourth quarter, compared with an increase of 3.2% in the third, the BEA said. Durable goods orders increased 6% quarter over quarter, after jumping 9.2% in the third quarter. Nondurable goods increased 3.8% and services rose 4.1%.

Real federal government consumption expenditures and gross investment, however, decreased 7.5% in the fourth quarter, in contrast to an increase of 9.9% in the third. National defense decreased spending fell 12.4%, but nondefense increased 1.4%.

The change in real private inventories added 0.12% to the fourth-quarter change in real GDP after a modest fall in the third quarter. Real private inventories is a measure of the value of the change in the physical volume of the inventories — additions less withdrawals — that businesses maintain to support their production and distribution activities.

Private businesses increased inventories $113.1 billion in the fourth quarter, following an increase of $82.2 in the third quarter of 2014. Inventory investment is one of the most volatile components of GDP.