4Q20 GDP: Slower Than Expected As Consumption Just 2.5%

Bottom Line:  The advance reading of 4th Quarter 2020 GDP showed strong gains in business fixed investment and residential investments, but consumption grew just 2.5%. Net exports were a modest drag on GDP, as were government purchases.   While manufacturing and housing continued to lead the recovery, consumption of non-durable goods was lower.   Consumers continued to spend on durable goods and autos, but most other segments were weaker as shutdowns for the virus began again in the fourth quarter.  Overall, this report showed just how fragile this recovery remains.  And with housing and manufacturing nearly as good as it can get, a lot will depend on the consumer in the coming months.Gross Domestic Product ROSE by 4.0% in the 4th Quarter, higher than market expectations for an increase of 2.2%.   Economic activity is now 2.5% BELOW its year-ago level.

Inventory Investment ROSE by $48.4 billion, adding 1.04 percentage points to overall economic activity. Consequently, Real Final Sales ROSE by 3.0% and is now 2.7% BELOW its year-ago level.Imports ROSE by 29.5% and Exports ROSE by 22.0% so Net Exports FELL by $102.1 billion. This implies that Real Final Domestic Demand ROSE by 4.4% and is now 1.5% BELOW its year-ago level.Consumer Spending ROSE by 2.5%, contributing 1.70 percentage points to economic growth.Business Investment ROSE by 13.8%, adding 1.73 percentage points to GDP.  Intellectual property products increased by 7.5% while non-residential structures increased by 3.0%. Residential Investment ROSE by 33.5%, adding 1.29 percentage points to economic growth.Finally, Government Purchases FELL by 1.2%, subtracting 0.22 percentage points to GDP. This was its 3rd negative contribution in the last 12 quarters.

The GDP Price Index ROSE by 2.1%, compared with market expectations of 2.2%. This is also 1.3% ABOVE its year-ago level.