GDP Signals Weak Growth

Real gross domestic product advanced 0.6% in the fourth quarter, which dragged full-year growth to its slowest rate in five years, according to the Commerce Department's initial estimate Wednesday morning.

GDP, the measure of goods and services produced by labor and property located in the U.S., widely missed economist's expectations of a 1.2% rise in the fourth quarter. Real GDP increased 4.9% in the third quarter.

For the full year, GDP advanced just 2.2%, the slowest rate of growth since 1.6% in 2002. The economy expanded 2.9% in 2006.

The "advance" GDP estimate, based on incomplete data, is the first of three readings by the Commerce Department's Bureau of Economic Analysis on fourth-quarter GDP. The second, or "preliminary," estimate is due out on Feb. 28.

Personal consumption expenditures, state and local government spending, exports and equipment and software sales in the fourth quarter were mostly offset by private inventory investment and residential fixed investment and an increase in imports, according to the bureau.

"The deceleration in real GDP growth in the fourth quarter primarily reflected a downturn in inventory investment and decelerations in exports, in [personal consumption expenditures], and in federal government spending that were partly offset by a deceleration in imports and an acceleration in state and local government spending," the bureau said in a statement.

Computer sales slipped to 0.18 percentage point of fourth-quarter growth, from 0.28 percentage point in the third quarter, the bureau said. Motor vehicle output negatively impacted 0.90 percentage point to the fourth-quarter number, vs. a 0.36 percentage point contribution in the third quarter.

The weak number could impact the Federal Reserve's decision this afternoon, when it is expected to announce a decision about whether to cut the fed funds rate. The Fed made an emergency cut of 75 basis points last week and the market is expecting another 50 basis point cut at the meeting Wednesday afternoon.