Fourth-Quarter GDP -- At A Glance

Underlying Shifts Don’t Change U.S. Growth Pace

The 2.2% seasonally adjusted annual rate matches the Commerce Department’s late-February estimate for real gross domestic product growth. There were shifts beneath the surface, with upward revisions to consumer spending and exports canceled out by downward revisions for inventories and government spending. The headline reading represents a slowdown from the third quarter’s 5% growth pace, and early estimates from private economists see the U.S. economy slowing even more sharply in early 2015. The first official estimate for first-quarter GDP will be released on April 29.

U.S. Corporate Profits Drop Sharply

A measure of U.S. corporate profits posted its sharpest drop since early 2011 during the fourth quarter of 2014, according to estimates in the GDP report. Profits after tax, without inventory valuation and capital consumption adjustments, fell at a 3% pace from the prior quarter after a 2.8% rise in the third quarter. That was the biggest decline since the first quarter of 2011, edging out the 2.9% drop seen in the first quarter of 2014. For the full year, profits rose 3.8% in 2014, slowing from 4.7% annual growth in 2013.

Services Spending Rises At Fastest Pace Since 2000

U.S. consumer spending rose at a 4.4% annual pace in the fourth quarter, up from an earlier estimate of 4.2% and the fastest pace since the first quarter of 2006. Spending on goods rose at a 4.8% rate versus an earlier estimate of 4.5%. Spending on services grew at a 4.3% pace, up from the earlier estimate of 4.1% and the fastest pace since the second quarter of 2000. Spending on health-care services contributed 0.88 percentage point to the quarter’s 2.2% growth rate, versus 0.53 percentage point in the prior GDP report, offset in part by a downward revision to spending on financial services. What changed? Hard data on revenue at service-providing companies became available earlier this month through the Census Bureau’s Quarterly Services Survey.

Dollar Means Smaller, But Still Significant, Trade Drag

Foreign trade subtracted 1.03 percentage points from the fourth quarter’s 2.2% GDP growth rate, down a little from an earlier estimate of a 1.15 percentage point drag from net exports. Export growth was revised up, largely due to travel services spending, but import growth was nudged higher too. Imports are a subtraction from the GDP calculation, so that dragged down broader growth. A stronger dollar makes U.S. exports more expensive and imports cheaper, a phenomenon flagged by Federal Reserve Chairwoman Janet Yellen at her press conference on March 18. “Export growth has weakened,” she said, and “probably the strong dollar is one reason for that.”