GDP Unexpectedly Undershoots Consensus: What’s Ahead?

The BEA’s second estimate for 4th quarter 2016 GDP remains unchanged from the advance reading of 1.9%.

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.

Looking Ahead

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