by Mish
Ahead of the report Econoday reported:
The third estimate of fourth-quarter GDP is expected to come in at a consensus 2.0 percent annualized pace, up from 1.9 percent in the first two estimates. A rise in inventories was an unwanted plus in the quarter while net exports were decidedly weak. Consumer spending got an upgrade in the second estimate to a 3.0 percent annualized pace where forecasters expect it to hold. The GDP price index is expected to remain at 2.0 percent in lagging confirmation that the Federal Reserve’s price targets are being met.
BEA Report
Let’s dive into the BEA report Fourth Quarter and Annual 2016 (Third Estimate)report for more details.
The GDP estimate released today is based on more complete source data than were available for the
“second” estimate issued last month. In the second estimate, the increase in real GDP was 1.9 percent.
With this third estimate for the fourth quarter, the general picture of economic growth remains largely
the same; personal consumption expenditures (PCE) increased more than previously estimated.
Real gross domestic income (GDI) increased 1.0 percent in the fourth quarter, compared with an
increase of 5.0 percent in the third. The average of real GDP and real GDI, a supplemental measure of
U.S. economic activity that equally weights GDP and GDI, increased 1.5 percent in the fourth quarter,
compared with an increase of 4.3 percent in the third quarter.
The increase in real GDP in the fourth quarter reflected positive contributions from 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 downturns in exports and in federal
government spending, an acceleration in imports, and a deceleration in nonresidential fixed investment
that were partly offset by accelerations in private inventory investment and in PCE, and upturns in
residential fixed investment and in state and local government spending.
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. The PCE price index increased 2.0 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.
The Fed seems bound and determined to get in at lease three rates hikes in 2017, with statements on the accelerating economy. Clearly, the economy is not accelerating, but the Fed will do what it wants, as long as it can convince the market it really will hike.
I strongly doubt three more hikes are in the cards. My expectation is no more hikes. We will see.
Meanwhile, and as noted on March 25, the Difference Between GDPNow and the FRBNY Nowcast is Two Percent.
The latest forecasts for Nowcast and GDPNow are 3.0% and 1.0% respectively. If the Nowcast is correct, more hikes than I expect will be in the cards.
Mike “Mish” Shedlock
