When I look under the hood of GDP reports, the fly in the ointment I usually find is inventories. In the third quarter last year, for example, removing inventory accumulation reduced the headline real GDP number of 4.1 percent to 2.5 percent in final sales. The estimate for real GDP in the fourth quarter also benefited from inventory accumulation, but not as much. It reduced the real GDP increase of 3.2 percent to a 2.8 percent final sales number—close enough. Happily, it shows growth accelerating from the third quarter to the fourth quarter rather than decelerating.
The most interesting thing about the latest estimates to me was the sharp decline in federal government consumption and investment and the sharp increase in net exports. This significant shift from government spending to private sector spending has not received much attention—not nearly as much as the parallel shift in employment.
Real federal government spending declined at a 12.6 percent rate in the fourth quarter, led by a 14 percent decline rate in defense spending. State and local government spending barely increased at a 0.5 percent rate. The increase in exports of goods and services in the fourth quarter came to 11.4 percent, with imports rising only 0.9 percent. Those of us who prefer a smaller government role in the total economy should be pleased. I am, but I would prefer that the decline not be led by defense.