4Q19 GDP: Residential Investment Stronger, Likely Continued Into 1st Quarter

February 27, 2020
Bottom Line: 4Q19 GDP: Economic activity for the 4th Quarter was mostly unchanged from its initial reading, in-line with expectations Of course, with markets focused on the impact of the Covid-19 virus on the 1st Quarter and beyond, this is old news. However, we can glean that residential fixed investment finished the year stronger than previously estimated, a trend that appears to have continued into the first quarter given the housing data so far. Business fixed investment was modestly lower than previously estimated, while consumption was nerarly unchanged from prior estimates. So far impacts from the supply chain disruptions due to Covid-19 have not shown up in the data. While markets have clearly reacted in the last week, domestic business surveys so far show little impact with most January and early February surveys showing improved outlooks from the 4th quarter. GDP was unchanged at 2.1% in this second estimate of economic activity for Q4-19. This was in line with market expectations. Economic activity is now 2.3% ABOVE its year-ago level and 28.2% ABOVE its 2007 Q4 cyclical peak. Because most of the adjustment was due to new December data, this revision suggests that the economic activity was little changed at the end of the quarter. Consumer Spending was revised lower by -0.05% to 1.7%, contributing 1.17% to economic growth. Business Fixed Investment was revised lower by -0.85% to -2.3%, contributing -0.31% to economic growth. Residential Investment was revised higher by 0.35% to 6.1%, contributing 0.22% to economic growth. Inventory Investment was revised modestly higher, contributing -0.98% to economic growth. Net Exports were revised modestly higher with a modest increase/growth in Exports and slight growth in Imports, contributing 1.53% to economic growth. Government Purchases were revised slightly lower but grew modestly for the 9th time in the past 12 quarters, contributing 0.46% to economic growth. As a result of all of these changes, Real Final Sales was revised modestly lower while Real Domestic Demand was unchanged. The GDP Price Index was REVISED LOWER by -0.15 points to 1.3%, compared with market expectations of 1.4%. Economy-wide prices are now 1.6% ABOVE its year ago level.