GDP Review Snapshot

• Fourth-quarter GDP rose only 1.9% (annual rate) falling short of expectations.
• For all of 2016, GDP grew 1.6% — well below the Obama Administration’s OMB projection of 2.6%.
• Average growth during the Obama Administration was 1.5%, less than half the average rate of 3.4% over the 50 years before the Obama presidency.

 

First Estimate of Fourth Quarter Data and 2016 Year-End Growth

The Bureau of Economic Analysis (BEA) reported that real gross domestic product (RGDP), which is adjusted for inflation, grew at a 1.9% annual rate* in the fourth quarter of 2016.  This compares to 3.5%, 1.4%, and 0.8% in the third, second, and first quarters, respectively.

 

Nominal GDP (NGDP), which measures total spending in the economy in current dollars, increased by 4.0% in the fourth quarter.  After adjusting for inflation of 2.1%—as measured by the GDP deflator—RGDP growth was 1.9%.

 

The inflation-adjusted dollar value of final goods and services produced within the borders of the United States (RGDP) in 2016 was $16.7 trillion compared to $16.4T in 2015.

 

Sources: BEA, Haver Analytics, Congressional Budget Office (CBO), Federal Reserve Board of Governors, Office of Management and Budget (OMB).

For the entire year NGDP grew by 2.9%.  After accounting for inflation of 1.3% (GDP deflator) RGDP growth registered a 1.6% increase for 2016.

 

 

Context

Fourth-quarter RGDP growth was driven by consumer spending and business investment.  Falling net exports were a large drag on growth this quarter as exports slowed and imports (which are always subtracted from GDP) grew.

A smaller increase in consumer spending was another factor causing the slowdown in RGDP growth from 3.5% last quarter to 1.9% this quarter.  This was partially offset by accelerating business investment, mostly due to an increase in business inventories.  Despite this, for 2016 overall, business investment was a drag on RGDP.  This was the first time since 2009 that investment contributed negatively to annual RGDP growth.

NOTE: The aforementioned information is based on the BEA first estimate of GDP.  Two revisions for BEA’s preliminary GDP report are scheduled for February 28 and March 20.

The Bigger Picture

The 2016 BEA preliminary GDP report is the last that will cover the Obama Administration exclusively.  RGDP’s 2016 increase of 1.6% was the slowest since 2009, when it fell 2.8%, and it ties with the 1.6% rate in 2011.  This complements the lackluster 2016 private-sector job growth, which averaged only 165,000 per month and is the slowest since 2010.

During the Obama Administration, annual RGDP growth averaged a meager 1.5%.  Prior to it, the average growth rate was 3.4% (50-year average).  In other words, pre-Obama, it would take only 21 years for the economy’s size to double.  At 1.5%, it would take 47 years.

Furthermore, according to CBO data the Obama Administration was the only one in the last 50 years to not experience at least one year in which GDP met or exceeded its potential (potential GDP is the maximum output an economy can produce without inflation).

The Office of Management and Budget (OMB) projection for annual growth in 2016 proved overly optimistic.  It forecast 2.6% in contrast to the actual 1.6%.

Economic Indicators

The following data measures economic activity during the fourth quarter.  These data are often used to forecast GDP growth before a given quarter’s end.

Source: Haver Analytics.

Key Upcoming Releases

• February 2, 8:30am: Third-quarter (2016) GDP by state
• February 28, 8:30am: Second estimate of fourth-quarter (2016) GDP data
• March 30, 8:30am: Final estimate for fourth-quarter (2016) GDP
• The BEA release dates for the first quarter of 2017:
  • First estimate: April 28, 8:30am
  • Second estimate: May 26, 8:30am
  • Third estimate: June 29, 8:30am

* Quarterly growth rates are measured at an annual rate unless stated otherwise.  An “annual rate” for a quarter means BEA applied the rate in that quarter as if it occurred throughout a year.