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GDP: 4Q Weaker On Lower Trade

January 27, 2017
Bottom Line: Economic growth decelerated in this first estimate of 2016 4th Quarter GDP. The economy grew less than forecast as net exports subtracted 170bps compared to adding 90bps in the 3rd Quarter. The only expenditure components that registered any significant strength were in the investment category as residential construction rebounded from slowness mid-year and business fixed investment continued to rebound off a depressed base. While subject to revisions from the volatile trade and inventory components, this initial read suggests 2016 finished with growth of just 1.9% for the year compared with 2.6% in 2015 and 2.4% in 2014.

Gross Domestic Product ROSE by 1.9% in the 4th Quarter, less than market expectations for an increase of 2.2%. During the 7 years of economic expansion, the economy grew at an average annual rate of 2.3% after declining at a 2.9% rate during the recession. Economic activity is now 1.9% ABOVE its year ago level and 12.1% ABOVE its pre-recession 2007 Q4 cyclical peak.

Inventory Investment ROSE by $41.6 billion, adding 1.00 percentage points to overall economic activity. Consequently, Real Final Sales ROSE by 0.9% and is now 1.9% ABOVE its year ago level. Additionally, Imports ROSE by 8.2% and Exports FELL by 4.3% so Net Exports FELL by $77.4 billion.

This implies that Real Final Domestic Demand ROSE by 2.5% and is now 2.1% ABOVE its year ago level. Consumer Spending ROSE by 2.5%, contributing 1.70 percentage points to economic growth.

Business Investment ROSE by 2.4%, adding 0.30 percentage points to GDP. Intellectual property products increased by 6.4% while non-residential structures declined by 4.9%. Residential Investment ROSE by 10.2%, adding 0.37 percentage points to economic growth.

Finally, Government Purchases ROSE by 1.2%, adding 0.21 percentage points to GDP. This was its 9th positive contribution in the last 12 quarters.

The GDP Price Index ROSE by 2.1%, compared with market expectations of 2.1%. This is also 1.6% ABOVE its year ago level.