Revised Q4 GDP Data Hints at Disposable Income Pressures

Three months ago feels like a long time.

But the latest — and revised — data on gross domestic product released Thursday (March 28) by the Bureau of Economic Analysis details the fourth quarter and gives some hints as to what may come in the months ahead.

The headline numbers show that real GDP was 3.4% higher in the fourth quarter, an upward revision of 0.2% from the earlier estimate for the period. The new revision still notches a marked slowdown from the 4.9% growth rate that had been seen in the third quarter.

The bureau said in its Thursday release that the upward revision was tied to increases in consumer spending and private investment, as supplemental materials revealed that real final sales in the quarter were 3.3% higher, up 0.4% from the earlier estimates. The price index was 1.9% higher, unchanged from earlier data, and the personal consumption expenditures (PCE) price index was also unchanged, with 1.8% growth.

Real consumer spending was 0.2% higher than consensus expectations for the quarter, indicating that the U.S. household is resilient — at least when it comes to forking over money at the register.

Disposable Income Revised

“Disposable personal income increased $190.4 billion, or 3.8%, in the fourth quarter, a downward revision of $12.1 billion from the previous estimate,” the bureau said. “Real disposable personal income increased 2%, a downward revision of 0.2%.”

Real disposable income is adjusted for inflation and indicates what consumers have left in the tank, so to speak, to keep spending, to invest or to save.

We’re already nearly at the end of the first quarter, and we’ll get fresh data for February on Friday (March 29) about core PCE and personal spending. Each data point, month by month, quarter by quarter, winds up telling a story. The deceleration in the economy bears watching, even if the fourth quarter got a slight bump. At the household/consumer level, real disposable income may be growing, but the pace is lumpy.

What Comes Next?

The impact may be measured in the present-day intent to spend, especially against the backdrop where, as PYMNTS Intelligence reported late last year, consumer debt is three times “more” than disposable income.

Separate data on consumer sentiment noted that the Expectations Index — which The Conference Board said is based on consumers’ short-term outlook for income, business and labor market conditions —fell to 73.8 from the February number of 76.3.

“An Expectations Index reading below 80 often signals a forthcoming recession,” the board added.

The board also gave assessments of consumers’ spending outlook. In 16 separate categories — spanning from motor vehicles to pet care to travel — only a minority of respondents said they would look to spend over the near term.

Many said they would spend the same amount through the next six months. As many as 30% of consumers said they anticipated spending less over the next six months on travel. Nearly 18% said the same for spending on beauty and personal care items and services. A full 26.2% said they would spend less at restaurants.