Fourth quarter GDP was upwardly revised from 0.7% to 1.0% in the second reading.

For a change economists were too pessimistic. The Bloomberg Econoday Consensus estimate was a downward revision to 0.4%.

The good news stops there because the revision reflects an unwanted buildup of inventories. Real final sales were a weak 1.2%


An upward revision to inventory growth made for an upward revision to the second estimate of fourth-quarter GDP, to an annualized plus 1.0 percent rate for a 3 tenths increase from the initial estimate. But, given slowing in demand during the quarter, the gain for inventories, at $81.7 billion vs an initial estimate of $68.6 billion, very likely reflects a build in unwanted inventories.

A clear negative in today’s report is a downgrade for personal consumption expenditures, to an annualized plus 2.0 percent in the quarter vs an initial estimate of 2.2 percent. Otherwise, revised readings are steady to unchanged with non-residential investment, hit by the mining and energy sectors, down at a 1.9 percent rate and exports down at an even steeper 2.7 percent rate. Residential investment remains the big plus, rising at an 8.0 percent rate. But final sales were slow in the quarter, up only 1.2 percent.

The economy, held down by weak exports and weak business investment, fumbled into year-end 2015, but the early outlook for the first quarter calls for a turn higher to trend growth, perhaps as much as 3 percent. Key data for the first quarter will be posted later this morning with the January personal income and expenditures report.

Recent History

The second estimate for fourth-quarter GDP is expected to come in at plus 0.4 percent vs an initial reading of plus 0.7 percent. The decrease reflects expectations for lower inventory accumulation and lower readings for both residential and non-residential investment. But it was consumer spending that was the highlight of the first estimate, rising at an annualized 2.2 percent in strength that has extended into the first quarter this year.

Economists missed this one by a mile, expecting a decrease in inventories, with strength in consumer spending and final sales.

In this case, I sympathize. GDP estimates are revised over and over. Even the third, allegedly final numbers are subject to revisions, years later.

There is no reason to have any faith in these numbers.

Mike “Mish” Shedlock