ECONOMY

Is It Time to Worry About a Slowdown?

An updated analysis shows a weaker fourth quarter last year, but small businesses are still buying.
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If your sales have slowed in recent months, you're not the only one. 

The Bureau of Economic Analysis, a division of the Department of Commerce, revised its January 30 report about the fourth quarter 2013, and it turns out the economic picture was not as healthy as previously thought.

The Bureau of Economic Analysis shows quarterly GDP growth for 2013

Gross Domestic Product increased at a 2.4 percent rate in the quarter, down from an estimate of 3.2 percent. In the third quarter, real GDP grew 4.1 percent. For the full year 2013, real GDP was 1.9 percent, compared to 2.8 percent in 2012.

The revisions were due primarily to a slower growth of inventory investment among businesses, as well as decreased government spending at the state and federal levels. Tack on a downturn in housing investment, and lower expectations for economic growth seem only logical.

To be sure, inventories grew, but at a falling rate, and consumer spending was also revised lower. Yet both continued to grow quarter over quarter.

Inventories added 0.14 percentage points to the fourth quarter changes in real GDP, BEA notes, but added 1.67 percentage points to the third quarter. In dollars, private businesses grew inventories $117.4 billion in the fourth quarter compared to $115.7 billion in the third quarter, and $56.6 billion in the second quarter.

Consumer spending is also accelerating, having increased 2.6 percent in the fourth quarter, compared to 2 percent in the third. More consumer spending is always good for business. But businesses added about 100 percent more inventory in the fourth quarter compared to the second, and overstocked inventory could weigh on future economic growth. And an oversupply could also lead to problems if you're stuck with it while demand slackens. 

Businesses in the fourth quarter also spent more on fixed investments like transportation equipment and software, the BEA notes.

"The upward revision to nonresidential fixed investment primarily reflected upward revisions to equipment and to intellectual property products," the BEA said in a technical note Friday. 

The news corresponds to what Rob Frohwein co-founder and chief executive of alternative lender Kabbage.com has seen in recent months. Total monthly loans have grown 150 percent to $1 million a day, as bricks-and-mortar stores and online retailers increase inventory, purchase equipment and beef up staffing and marketing efforts.

"Small business owners are cautiously optimistic and they are investing wisely in their growth, rather than rampantly and optimistically spending," Frohwein says.

Full-year GDP data from BEA for 2013

Last updated: Feb 28, 2014

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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