GDP Grew 3.5% in Q4; Wages Up 0.8% in Q4; Fed Leaves Rate at 5.25%

The US economy grew at a faster-than-expected 3.5% pace in the final quarter of 2006 on strong consumers spending, despite the housing slump, according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0%.
  • Q1 2006: 5.6%, the fastest in 2 1/2 years. 
  • Q2 2006: 2.6% 
  • Q3 2006: 2.0% 
  • Q4 2006: 3.5%
  • Full Year 2006 GDP growth: 3.4%, compared to 3.2% in 2005

Other GDP Report Highlights:

  • Consumer spending grew at a 4.4% annual rate, up from a 2.8% pace in the third quarter. 
  • Private investment declined 11.0%, compared with a 0.8% decline in the third quarter.

  • Government spending increased at a 3.7% pace in the final quarter, up from a 1.7% growth rate in the third quarter. 
  • Federal spending on national defense rose at a rate of 11.9% in the fourth quarter, the most since the spring of 2003. 
  • Investment in home building during the fourth quarter plunged at a rate of 19.2%, even worse than the 18.7% drop in the prior quarter. Both were the worst drops in 15 years. 
  • Investment in home building for all of last year was slashed by 4.2%, the most in 15 years.

Real disposable income increased 5.4% in the fourth quarter, following an increase of 4.1%.

Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 5.0% in the fourth quarter to a level of $13,487.2 billion. 

For the full year 2006, current-dollar GDP increased 6.4%, or $798.1 billion, compared to 6.3% in 2005.

The drop in residential building in the fourth quarter shaved 1.16 percentage points off GDP. In the third quarter, it sliced a bigger 1.20 percentage point off of overall economic growth. 

The troubled automotive sector with lower car and truck production shaved 1.17 percentage points off fourth-quarter GDP.

Prices for personal consumption expenditures (inflation tied to GDP) decreased 0.8%, compared with an increase of 2.4%. Excluding food and energy, prices increased 2.1%, compared with 2.2% in the 3rd quarter. For all of 2006, core inflation rose by 2.2%, up from 2.1% in 2005.

Other Key Economic Indicators for Today:

Fed Rate: The Federal Reserve left interest rates unchanged at 5.25%, where it has been since last June.

Construction Spending:Spending on construction projects dropped 0.4% in December, the Commerce Department reported.

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2006 was estimated at a seasonally adjusted annual rate of $1,177.7 billion, 0.4% below the revised November estimate of $1,182.9 billion. The December figure is 1.4% below the December 2005 estimate of $1,194.5 billion.

The value of construction spending in 2006 was $1,198.0 billion, 4.8% above the $1,143.7 billion spent in 2005.

ADP Employment Report: Private sector employment increased by 152,000 in January, according to today‚Äôs ADP National Employment Report SM. The ADP National Employment Report, is based on actual payroll data and measures the change in total nonfarm private employment each month. 

Employment Cost Index: Wages and benefits rose 0.8% in the fourth quarter, down from a 1% rise in the third quarter, the Labor Department reported.

MBA Mortgage Applications: The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending January 26.  The Market Composite Index, a measure of mortgage loan application volume increased of 3.2% from one week earlier.  On an unadjusted basis, the Index increased 5.9% compared with the previous week and was up 0.7% compared with the same week one year earlier.

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