In its second estimate, U.S. GDP was revised to 5.9% by the Bureau of Economic Analysis. That's higher than the first estimate of 5.7% last month. Clearly, an upward revision is generally interpreted as positive news. But looking a little deeper into the numbers might not make the change as hopeful as it appears for the condition of the economy in the fourth quarter.
First, it's worth noting that a positive revision is a drastic change from what we saw with third quarter GDP. In that case, there were two revisions significantly downward. Not only was the forth quarter's revision positive, but it was small. That probably indicates that the original revision wasn't that far off to begin with. At this point, the prospect of seeing next month's final revision much lower than the first isn't very likely.
I went ahead and dug into the numbers. Most of the change comes from a better result in gross private domestic investment. Almost all of its components were better than the first estimate indicated. That makes clear businesses continue to lead recovery. But the biggest upward revision within this category was from the change in private inventories. The first estimate already indicated that this item was the biggest reason for the fourth quarter's rise in GDP. Now it accounts for even more. It was revised to make up 3.9% of the 5.9% GDP growth. It was previously thought to account for only 3.4%. Generally, economists are less impressed with this factor as a sign of present economic health. Instead, it indicates firms believe that a recovery is imminent.