GDP Unexpectedly Undershoots Consensus: What’s Ahead?
The Econoday consensus estimate was 2.1% in a range of 2.0% to 3.1%. Thus, not a single economist managed to peg the number.
The second revision to fourth-quarter GDP shows little change, actually no change at the headline level which remains at 1.9 percent annualized growth. But good news comes from consumer spending which gets a 5 tenths of a percentage point upgrade to a 3.0 percent rate and a 2.1 percent contribution. Durables, reflecting vehicle sales, are the standout at an 11.5 percent rate (nondurables at plus 2.8 percent and services at plus 1.8 percent). Nonresidential fixed investment gets a small downgrade to a 0.2 percent contribution with residential investment also getting a small downgrade but still solid at a 0.4 percent contribution.
Inventories show little change in the revision, rising what may prove an unwanted $46.2 billion and contributing 9 tenths of a percentage point or nearly half of the quarter’s total growth. Net exports are unchanged, subtracting 1.7 percentage points as exports fell sharply and imports rose even more sharply. Government purchases get a downgrade, contributing only a small fraction to the quarter’s GDP.
The fourth quarter was mixed with negatives led by net exports and the questionable inventory build. But the positives are clear, a consumer that was spending and also investing in housing.
Rick Davis at Consumer Metrics writes:
In their second estimate of the US GDP for the fourth quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the US economic growth rate was +1.85%, essentially unchanged from the +1.87% previously reported but down by nearly half (-1.68%) from the prior quarter.
Although there was no material change in the headline number, the composition of that number was revised in several ways. Consumer spending on goods and services was revised upward by an aggregate of +0.35%. Meanwhile fixed commercial investment, inventories and governmental spending were revised in aggregate downward by -0.37% — completely offsetting the consumer gains.
The BEA’s “bottom line” (their “Real Final Sales of Domestic Product”, which excludes the growing inventories) continues to record a sub 1% growth rate (+0.91%), down over 2% (-2.13%) from 3Q-2016.
Real annualized household disposable income was reported to have grown by $127 quarter-to-quarter, to an annualized $39,481 (in 2009 dollars). The household savings rate was unchanged at 5.6%.
For the fourth quarter the BEA assumed an effective annualized deflator of 2.03%. During the same quarter (October 2016 through December 2016) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 3.05%. Under estimating inflation results in correspondingly over optimistic growth rates, and if the BEA’s “nominal” data was deflated using CPI-U inflation information the headline growth number would have been below 1%, at a +0.87% annualized growth rate.
Looking ahead, housing is questionable. Also, how long can increasing incentives keep autos humming?
The rising CPI is also a huge minus for real spending and real GDP.
Once again, despite huge jumps in reported jobs (assuming one believes the numbers), the economy struggles to hit a modest 2% growth even with an inventory build that contributed nearly half of the reported 1.9% growth.
Mike “Mish” Shedlock