GDP Rises .4%

Real gross domestic product (GDP) increased 0.4% in the fourth quarter, slowing from 0.7% in the third. Exports declined for a second consecutive quarter, while final domestic demand strengthened to 1.1% growth. GDP grew 0.2% in December following a 0.3% increase in November and a flat performance in October.

The goods and services sectors of the economy expanded at similar rates, but within the goods sector manufacturing output was flat. After strong gains in the first two quarters, profit growth slowed to 1.5% in both the third and fourth quarter.

Growth in consumer spending was sustained at 1.0%, and housing investment posted another solid increase (+1.7%). Businesses accelerated investment in machinery and equipment, while growth in non-residential construction activity softened.

Inventory accumulation increased in the fourth quarter, with the build-up concentrated in wholesale and manufacturing, especially for durable goods. Retail inventory accumulation was reduced significantly.

Economy-wide prices, as measured by the GDP chain price index, rose 0.8%. Excluding energy, the increase was 0.5%.

Exports slipped 0.9% in the fourth quarter, matching the third quarter decline. Virtually all goods categories decreased, with the exception of industrial goods and materials and automotive products. Exports of machinery and equipment posted another quarterly decline, after strong increases in the first half of the year. Exports of agricultural and fish products fell 3.9%, and forestry products edged down, dampened by the slowing US housing market.

Other report findings include:

A strong Canadian dollar hurt manufacturers, whose output was flat in the fourth quarter but overall goods production still grew 0.5%.

After posting healthy increases in the first half of 2004, corporate profits weakened in the latter part of the year, increasing only 1.5% in each of the last two quarters.

Business investment in plant and equipment registered another healthy increase, the strongest this year (+2.2%). However, business investment in buildings and engineering projects remained weak in the fourth quarter (+0.4%).

Consumer spending increased 1.0% in the fourth quarter, similar to its third quarter increase of 0.9%, but down from the strong growth earlier in the year.

Business investment in residential construction posted another solid increase (+1.7%), its sixth consecutive quarterly gain.

Non-farm businesses increased inventories by $19.2 billion in the fourth quarter, following a large accumulation in the third.