The US economy grew 3.2% in Q4 in real terms vs expectations of 3.5%. Nominal GDP was well below forecasts, rising just 3.5% vs expectations of 5.1% as the price deflator was up only .3% vs an expected 1.6% rise. Personal consumption was up 4.4%, .4% better than estimated. Trade also added to growth as exports rose while imports fell. Inventories were a drag, taking out almost 4% pts out of GDP and Gov’t spending was also a drag, by a modest .6%. Real final sales, which take out the influence of inventories, rose a solid 7.1% but in part because of a much less than expected inflation rate which will likely change in 2011. Spending on equipment and software rose by 5.8%, the slowest in 5 Q’s but the past 4 were up sharply. Residential construction rose 3.4%, the 1st up Q since Q3 ’09. Bottom line, the market likes the Real final sales figure but the price deflator was well below estimates where Nominal GDP was mediocre.
To highlight the contribution of a much less than expected price deflator to the GDP report, if it came in as expected at up 1.6% (instead of actual .3%), REAL GDP would have been reported at 1.9%.