The biggest news in the advance estimates of fourth quarter GDP growth: Real exports of goods and services increased 18.1 percent in the fourth quarter, compared with an increase of 17.8 percent in the third. If the US hopes to end the recession without returning to very low saving rates, exports must rise. And so this is very good news. And would be helped further if the dollar continues its decline. This good news was more important than the bad: private inventories rose significantly, “contributing” about 3 percentage points to real GDP growth. Real final sales rose only 2.2% at an annual rate. But, given where we have been and the fears of a double dip recession, 2.2% is pretty good news.
Annual GDP growth rates by quarter (Source: BEA; click on chart to access the report)
It is difficult to see how weakening dollar is a good news. Any export growth at the expense of the currency is at best pyrrhic victory. If you take out inventories and the foreign trade sector, you’d see that domestic demand in the fourth quarter actually slowed to a 1.7% vs 2.3% in the third quarter. Not a good sign by any means.
If you consider that aggregate private hours worked decreased by 0.5% annualized, then you are left with a puzzling and unprecedented spike in productivity. Since, we haven’t had any earth shattering tech advances or capital deepening, I’d say revisions are coming and they will be massive.