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? - 11 August 2023
Wells Fargo Economics & Financial Report / Aug 15, 2023
During July, both the headline and core Consumer Price Index (CPI) rose 0.2%. On a year-over-year basis, the core CPI was up 4.7% in July. Recent signs have been more encouraging, with core CPI running at a 3.1% three-month annualized pace.
This Week's State Of The Economy - What Is Ahead? - 06 March 2020
Wells Fargo Economics & Financial Report / Mar 07, 2020
An inter-meeting rate cut by the FOMC did little to stem financial market volatility, as the number of confirmed COVID-19 cases continued to climb.
This Week's State Of The Economy - What Is Ahead? - 23 July 2021
Wells Fargo Economics & Financial Report / Jul 30, 2021
In the biggest financial news this week not connected to college football conference realignment, July\'s NAHB Housing Market Index slipped one point to 80.
This Week's State Of The Economy - What Is Ahead? - 29 May 2020
Wells Fargo Economics & Financial Report / May 30, 2020
The beginning of this week saw some optimism that the economic downturn could be relatively short-lived, but data through the rest of the week provided grim reminder of the economic damage from COVID-19.
This Week's State Of The Economy - What Is Ahead? - 20 September 2019
Wells Fargo Economics & Financial Report / Sep 21, 2019
The Federal Reserve reduced the fed funds rate 25 bps this week, continuing to cite economic weakness overseas and muted inflation pressures.
This Week's State Of The Economy - What Is Ahead? - 24 July 2020
Wells Fargo Economics & Financial Report / Jul 25, 2020
Initial jobless claims rose to just over 1.4 million for the week ending July 18. Continuing claims fell to about 16.2 million. Initial claims edging higher suggests that the resurgence of COVID-19 may be taking a toll on the labor market recovery.
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.
This Week's State Of The Economy - What Is Ahead? - 22 November 2019
Wells Fargo Economics & Financial Report / Nov 23, 2019
Minutes from the October FOMC meeting indicated the Fed is content to remain on the sidelines for the rest of this year as the looser financial conditions resulting from rate cuts at three consecutive meetings feed through to the economy.
This Week's State Of The Economy - What Is Ahead? - 03 September 2021
Wells Fargo Economics & Financial Report / Sep 10, 2021
e move into the Labor Day weekend celebrating the 235K jobs added in August, while simultaneously lamenting that it was about half a million jobs short of expectations.
This Week's State Of The Economy - What Is Ahead? - 10 March 2023
Wells Fargo Economics & Financial Report / Mar 14, 2023
Financial markets were looking for validation that January\'s unexpected strength was not a fluke and that the downward slide in economic momentum experienced late last year had stabilized.
