The second iteration of Q4 GDP came in slightly better than the markets expected, with the downward revision less severe at 2.2% from 2.6%. Personal consumption was revised just a tad lower to 4.2% from 4.3%, but final sales to domestic purchasers were revised higher to 3.2% from 3.2%, suggesting that domestic consumption continued to power GDP growth during the final quarter of 2014. Real final sales were also revised higher to 2.1% from 1.8%, and while these stand below the extremely strong 5.0% pace seen in Q3, we believe they signal strong domestic demand that should continue to support US economic growth in the months ahead.
Downward revisions came largely where expected, with personal consumption adding a slightly smaller 2.83ppts to Q4 GDP growth as spending on goods was revised lower but spending on services was revised higher. Investment was the main source of the downward revision, with the gross private domestic investment contribution slipping to 0.84ppts from 1.20ppts due to downward revision in the inventory contribution to 0.12% from 0.82%. The data nevertheless disguises the positive revisions to fixed investment, which added 0.71ppts to Q4 growth – nearly double the initial estimate. Net exports also saw a modestly larger drag as a stronger dollar contributed to higher imports. The drag from government consumption was also revised lower to -0.32% from -0.40% as state and local government spending was revised higher.
While the second Q4 GDP estimate saw a downward revision, we believe the data signals a less pronounced slowing in growth momentum than was expected by markets.