Today the Commerce Department announced its advance figure for the fourth quarter Gross Domestic Product (GDP) and the final value for GDP for the third quarter. GDP measures the total output of goods and services produced by labor and property located in the United States.

The GDP growth rate for the third quarter was revised upward from 3.2 percent to 3.6 percent. But, the value for the fourth quarter was a real shocker. Analysts expected fourth quarter GDP growth somewhere around 1.7 percent. But, the reported figure came out to be almost half that amount -- 0.9 percent ($15.5 billion).

As might have been expected, a falloff in consumer spending made a major contribution to the fourth quarter flop. Real personal consumption expenditures increased 0.8 percent ($9.3 billion), compared with a growth rate of 2.8 percent ($31.6 billion) in the third quarter.

During the fourth quarter, businesses made some headway in reducing the excess goods that had accumulated due to slow consumer spending. Businesses increased inventories by only $20.4 billion in the fourth quarter, following increases of $33.2 billion in the third quarter and $30.6 billlion in the second.

Residential investment also slowed considerably from an increase of 9.2 percent ($5.7 billion) in the third quarter to an increase of 4.5 percent ($2.9 billion) in the fourth.

For all of 1995, GDP grew at a rate of 2.1 percent -- the slowest growth since 1991 when the economy was dragging itself out of a recession.

On the brighter side, the GDP implicit price deflator -- an inflation indicator -- fell to an annualized rate of only 1.8 percent during the fourth quarter. For all of 1995, the deflator stood at a modest 2.4 percent.

Well, it really does appear that the Federal Reserve has managed to whip inflation. But, the cost has been that economic growth has slowed. Let's hope that we can count on Chairman Greenspan to ease credit further if inflation stays in check.

In other news today, the Bureau of the Census released its report on Housing Starts and Building Permits in December 1995 and January 1996.

In December the annualized new-start rate was 1,385,000. This was 5.0 percent lower than November's rate of 1,458,000. In January the rate rose to 1,446,000 -- up 4.4 percent from December.

For all of 1995, an estimated 1,350,000 privately owned housing units were started. This is 7.34 percent lower than the figure for 1994.

To get a better insight into the new-start data we need to examine its components. Single-family home starts typically account for about 80 percent of housing starts. Of the remaining starts, about 90 percent are multiple-unit structures of 5 units or more. During January, single-family starts rose by 1.4 percent and multi-unit starts rose by 18.4 percent. Since September, the single-family start rate was unchanged, while the multi-unit rate grew by 22 percent. It seems that the residential construction industry is responding to a trend toward decreasing home ownership. In other words, because of the general weakness in the economy and uncertainties in the job market, fewer families are able or willing to make the financial commitment to buying a home.

The new-starts report also includes data on the number of housing units authorized by building permits. The monthly permits figure is one of the eleven indicators that make up the Commerce Department's Composite Index of Leading Economic Indicators (LEI). The December permits figure was 4 percent higher than the November number; but, the January number fell 6 percent below the rate for December.

For all of 1995, an estimated 1,333,000 housing units were authorized by building permits. This was 2.77 percent lower than the figure for 1994.

The December permits data was not available in time to be factored into last Tuesday's release of the LEI. If it had been available, nine of the eleven components of the LEI would have made positive contributions to the index. Based on today's report, the permits indicator will be making a negative contribution to the index in January.

Byline: Lafferty (MF Merlin)