Despite the Beat, Q4 GDP Conceals Slowing Economic Momentum
At first glance, this week's GDP report revealed that the U.S. economy expanded at an above-trend pace in the fourth quarter. Underlying details, however, were less encouraging than the stronger-than-expected headline gain. When combined with the waning performance of recently monthly data, the Q4 GDP report suggests that the U.S. economy ended last year with a distinct loss of momentum that is likely to carry through into 2023.
Real GDP expanded at an annualized pace of 2.9% in the fourth quarter relative to the third quarter. This marks the second straight quarter of above-trend growth, as real GDP increased at a 3.2% pace in Q3. On a year-over-year basis, however, real GDP growth moderated to a 1.0% pace, down substantially from the 5.7% rate registered in Q4 2021.
The composition of fourth quarter growth was not nearly as strong as the headline figure would suggest. As businesses added nearly $130 billion to their stocks, the inventory build contributed a stronger-than-expected 1.5 percentage points to top-line growth, reflecting, in part, strength in manufacturing, mining and utilities. We are mindful that this inventory build could be unintended and, therefore, presents downside risk in Q1. Another surprise was net exports, which added 0.6 percentage points to headline GDP. Exports fell 1.3% reflecting deteriorating external demand, while imports declined 4.6% amid the ongoing deterioration in domestic demand for goods from abroad. Government outlays registered another solid performance in Q4, up 3.7%, with gains in both federal and local spending.
A better measure of underlying demand is real final sales to private domestic purchasers. Comprised of consumer spending and business fixed investment, this component represents the core part of the economy that is targeted by monetary policy. Real personal consumption expenditures increased at a healthy 2.1% annualized pace, with the strongest gains coming in services. Spending on "other" services (notably international travel), restaurant dining and health care led the way, suggesting consumers are not done yet making up for experiences held off during the pandemic. Unfortunately, consumer spending's pace was front-loaded in the quarter and does not truly reflect the underlying trend. On a monthly basis, real consumer spending contracted in December (-0.3%) and November (-0.2%), following a solid gain in October (0.4%) (chart). This weakening performance suggests that higher interest rates are taking a bigger toll on the all-important U.S. consumer. Moreover, the weakness exhibited at the end of 2022 places consumer spending growth on an uphill battle in Q1.
This Week's State Of The Economy - What Is Ahead? - 21 May 2021
Wells Fargo Economics & Financial Report / May 25, 2021
Over the past year, the housing market has become white-hot.
This Week's State Of The Economy - What Is Ahead? - 28 May 2021
Wells Fargo Economics & Financial Report / Jun 08, 2021
This week\'s light calendar of economic reports showed supply chain disruptions tugging a little at economic growth.
This Week's State Of The Economy - What Is Ahead? - 04 August 2023
Wells Fargo Economics & Financial Report / Aug 09, 2023
Employment growth was broad-based, though reliant on a 87K gain in health care & social assistance. Modest gains from construction, financial activities and hospitality also contributed to private sector job growth.
This Week's State Of The Economy - What Is Ahead? - 12 May 2023
Wells Fargo Economics & Financial Report / May 17, 2023
In April, the CPI rose 0.4% on both a headline and core basis, keeping the core running at a 5.1% three-month annualized rate. However, details pointed to price growth easing ahead.
This Week's State Of The Economy - What Is Ahead? - 08 April 2022
Wells Fargo Economics & Financial Report / Apr 11, 2022
Wednesday\'s release of the FOMC minutes stirred things up as comments showed committee members agreeing that elevated inflation and the tight labor market at present warrant balance sheet reduction to begin soon.
This Week's State Of The Economy - What Is Ahead? - 04 December 2020
Wells Fargo Economics & Financial Report / Dec 09, 2020
Manufacturing held up relatively well in November, despite a larger-than-expected dip in the ISM manufacturing survey. The nonfarm manufacturing survey rose slightly.
This Week's State Of The Economy - What Is Ahead? - 15 December 2023
Wells Fargo Economics & Financial Report / Dec 21, 2023
core CPI remained elevated in November at a 4.0% annual rate, a string of slower monthly prints suggests that disinflation has more room to run.
June 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Jun 18, 2020
The Fed expects to hold interest rates near zero through the end of this year, perhaps well into next year, and maybe even into ’22.
This Week's State Of The Economy - What Is Ahead? - 31 July 2020
Wells Fargo Economics & Financial Report / Aug 11, 2020
The resurgence in COVID-19 in much of the Sun Belt appears to have topped out, although cases are rising faster in some smaller mid-Atlantic states and in parts of Europe, Asia and Australia.
This Week's State Of The Economy - What Is Ahead? - 16 September 2022
Wells Fargo Economics & Financial Report / Sep 20, 2022
Financial markets reacted in a zig-zag pattern to this week\'s economic data ahead of the next FOMC meeting. Price pressure is still not showing the sustained slowdown the Fed needs before it takes its foot off the throttle of tighter policy.
