Weaker Than Expected GDP: Mixed Bag Or Worse?

Fourth Quarter real GDP came in at 2.6%. Nowcast estimated 3.9%, GDPNow 3.4%. Let’s dive into the report.

The BEA estimates the Advance Estimate of Real GDP for the fourth quarter at 2.6%. The figure is well below estimates by Nowcast, GDPNow, and Econoday (3.9%, 3.4%, 2.9%) respectively.

Percentage Point Contributions

Within Fixed Investment

For all the talk about housing, the reported number had to be worse than expected.

Within Net Exports

Econoday Crows Over “Standout” Report

Econoday was crowing over the results.

The 2.6 percent headline rate doesn’t do justice to fourth-quarter GDP where consumer spending rose a very strong 3.8 percent that reflects a 14.2 percent burst in durable spending. Residential investment, which is another consumer-related component, rose at a very impressive 11.6 percent annualized rate. Turning to business spending, nonresidential fixed investment rose at a 6.8 percent rate which is the fourth straight mid-single digit result. Government purchases, at a 3.0 percent rate, also added to GDP in the quarter.

What pulled down fourth-quarter GDP were net exports, at an annualized deficit of $652.6 billion, and inventories which rose at a slower rate than the third quarter. Looking at final sales to domestic buyers, which excludes inventories and exports, GDP comes in at a robust 4.3 percent.

Prices also showed life in the quarter, with the index at 2.4 percent vs the third quarter’s 2.1 percent. This is a standout report led by the consumer that shows the economy accelerated into year-end 2017 with strong momentum going into 2018.

Standout Nonsense

The report is nothing to crow about. It’s a mixed bag. Changes in inventory will even out over time so one can argue the inventory drawdown is a plus looking ahead.