GDP not quite the blockbuster

GDP not quite the blockbuster


This morning we got the advanced Q4 GDP estimate, which saw the growth rate for Gross Domestic Product come in weaker than consensus estimates, a surprise to no one who regularly reads our work. Yesterday, the Atlanta Fed’s GDPNow model forecast was for 3.4% in Q4 while the Wall Street Journal survey of economists pinned the number at 2.9%. The reality was 2.6% is a solid number, but a decline from the 3.2% in Q3 and 3.1% in Q2. Overall 2017 saw the strongest growth rate since 2014, when GDP rose 2.7%.

Looking into the details here is what I found:

  • The biggest driver of growth was consumption, adding 2.6% to GDP, versus adding 1.5% in Q3. Durable goods demand was quite strong, but some of that is a result of the string of brutal natural disasters which damaged/destroyed homes and autos. We also saw stronger spending on clothes and restaurants.
  • Investment added just 0.6% to GDP versus 1.2% in Q3. The rate of fixed investment growth nearly tripled from Q3 but inventory dropped from adding 0.8% in Q3 to subtracting -0.7% in Q4.
  • Trade was the big whopper here, removing 1.1% from GDP versus adding 0.4% in Q3. The export of goods was strong, rising to 1% in Q4 from 0.2% in Q3, but Imports detracted 2% from GDP, despite those stronger exports. The goods trade deficit made a new high, the largest since Q3 2008.
  • Finally, government spending added 0.5% to GDP versus just 0.1% in Q3. The growth was at both the state/local and the federal level.

The bottom line is that growth in the fourth quarter was utterly consumer-dependent and the average consumer is financially stressed. The year over year growth in real earnings for roughly 80% of the population has been less than 1% over the past year, the personal savings rate has dropped to a decade low of 2.9%, and credit card debt has again reached record highs. Without material gains in wages, the current rate of spending growth cannot be maintained.

About the Author

Lenore Hawkins, Chief Macro Strategist
Lenore Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, strategic planning, risk management, asset valuation and operations optimization, her focus is primarily on macroeconomic influences and identification of those long-term themes that create investing headwinds or tailwinds.

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