It appears that Deutsche Bank’s warning that the global economy is about to roll over was spot on, because moments ago the Bureau of Economic Analysis reported that GDP in Q4 rose only 1.9%, barely above the lowest forecast of 1.7%, and below both the consensus estimate of 2.2% and the whisper estimate of 2.5%-2.6%. The reason for the big miss, and nearly 50% drop from the 3.5% print in Q3: a collapse in contribution to GDP from trade (net exports and imports) which subtracted a whopping 1.7% from the headline number. So much for that bumper soybean bumper boost to the US economy. The silver lining: Business investment picked up to 0.67% of the final print, potentially a harbinger for faster capital spending in 2017.
Net exports subtracted 1.7% points from Q1 GDP, the most since the second quarter of 2010, as the trade deficit widened following a jump in soybean shipments that helped add to growth in the third quarter. The chart below shows just how big the trade slowdown was in the last quarter.
The adverse impact from trade is shown in the contribution chart below: the -1.7% reduction from the bottom-line annualized number was the largest since 2010.
Inventory expansion added 1 percentage point to GDP growth, as stockpiles were rebuilt at a $48.7 billion annualized pace following a $7.1 billion rate.
Personal Consumption Expenditures, while not distressing, slowed down again, and contributed just 1.7% of the final number, the lowest since Q1. In addition to household spending, the economy got help from business spending on equipment, which rose 3.1% for the first gain in five quarters. Inventory accumulation added the most to growth since early 2015, housing made the strongest contribution in a year and government spending picked up.
Nonresidential fixed investment increased at a 2.4% annualized pace, adding 0.3% point to growth, the most in five quarters. Investment in nonresidential structures, including office buildings and factories, fell at a 5 percent rate after a 12 percent jump. Residential construction increased at a 10.2 percent annualized rate, adding 0.37 percentage point to growth. That followed a 4.1 percent decline in the previous three months.
Government spending grew at a 1.2 percent rate as state and local outlays picked up. Spending by federal agencies fell for the third time in a year, dropping at a 1.2 percent pace.
After-tax incomes adjusted for inflation climbed at a 1.5 percent annual rate, a three-year low. The saving rate decreased to 5.6 percent from 5.8 percent.
The big drop in Q4 GDP growth means that full year 2016 GDP stood at only 1.6%, the slowest print of the decade.
Some more details from the report:
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports, a deceleration in PCE, and a downturn in federal government spending that were partly offset by an upturn in residential fixed investment, an acceleration in private inventory investment, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment.
Current-dollar GDP increased 4.0 percent, or $185.5 billion, in the fourth quarter to a level of $18,860.8 billion. In the third quarter, current dollar GDP increased 5.0 percent, or $225.2 billion
The price index for gross domestic purchases increased 2.0 percent in the fourth quarter, compared with an increase of 1.5 percent in the third quarter (table 4). The PCE price index increased 2.2 percent, compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index increased 1.3 percent, compared with an increase of 1.7 percent (appendix table A).