The BEA released their first estimate of United States 2010 quarter 4 GDP this morning. The economy grew at 3.2 percent in the fourth quarter which is an acceleration from the previous quarter’s 2.6 percent. The acceleration in growth was primarily driven by consumption growth, fixed investment, and declines in imports. Imports are a subtraction from GDP. These were offset by a decline in inventory investment.
The BEA measure of the savings rate fell to 5.4 percent in the fourth quarter, from 5.9 percent in the third quarter. This is the lowest savings rate since 2008.
This estimate exceeds our forecast by 100 basis points. In one sense we continue to underestimate productivity because our jobs forecast has been relatively more accurate. In another sense we continue to overestimate the savings rate because we are missing the consumption growth rate by more than we are missing the income growth rate. Less interestingly, our inventory investment forecast was way off.
I note that virtually any measure of household debt is still extraordinarily high and these need to fall. For the long-term health of the American household sector and the economy, I am concerned about the fall in the savings rate. I hope that the increased consumption and falling savings rate do not forebode an extended period of weakness in the United States economy.