Highlights
Fourth quarter GDP was revised down significantly as the Commerce Department's first revision to fourth quarter GDP knocked the quarter's growth rate down to a 6.2 percent decline from the initial estimate of a 3.8 percent drop. The latest number was below the market forecast for a 5.4 percent decrease. The downward revision was primarily due a sharply lower estimate for inventories and for exports. Also, personal consumption, nonresidential fixed investment, and government purchases were revised down modestly. These were partially offset by a less weak decline in residential investment. The fourth quarter fall in GDP followed a 0.5 percent dip the prior quarter.

The positive news in the report was that inventories are now seen as falling $19.9 billion instead of rising $6.2 billion. This leaves less inventory overhang to work off even though the downward revision pulled down Q4.

Turning to inflation, the GDP price index was revised up to plus 0.5 percent annualized from the initial estimate of a 0.1 percent dip and topped the consensus forecast for an annualized decline of 0.1 percent. Headline PCE inflation was revised up to down 5.0 percent while core PCE inflation also was nudged up to 0.8 percent annualized for the fourth quarter.

Year-on-year growth for real GDP slipped to minus 0.8 percent and is down from up 0.7 percent in the third quarter. Year-on-year growth for the GDP price index eased to up 2.0 percent from up 2.6 percent in the third quarter.

The latest revisions to GDP show the economy in deep recession and it is likely to be worse in the first quarter. Today's report should weigh on equities but any commentary on banking reform or capitalization could offset.

Market Consensus before announcement
The initial estimate for fourth quarter GDP showed the recession is worsening with a sizeable 3.8 percent decline, following a 0.5 percent contraction the prior quarter. The economic decline was spread throughout the economy. The all important consumer spending component dropped 3.5 percent annualized. We also saw sharp declines in residential investment and business investment in equipment & software. Nonresidential structures investment dipped slightly and even exports declined. We likely will see a downward revision to the fourth quarter. But pay specific attention to final sales-which indicate how strong demand is. Markets did not pay much attention to it, but final sales fell an annualized 5.1 percent in the fourth quarter. How this figure winds up will play a key role in how first quarter growth ends up.

Real GDP Consensus Forecast for preliminary Q4 08: -5.4 percent annual rate
Range: -6.1 to -3.8 percent annual rate

GDP price index Consensus Forecast for preliminary Q4 08: -0.1 percent annual rate
Range: -0.4 to 0.0 percent annual rate

2009 Release Schedule

Released On: 1/30 2/27 3/26 4/29 5/29 6/25 7/31 8/27 9/30 10/29 11/24 12/22 Release For: Q4a Q4 Q4f Q1a Q1p Q1f Q2a Q2p Q2f Q3a Q3p Q3f   A: Advance P: Preliminary F: Final