ANALYSIS:US Q4 GDP +2.8%, GDP Px +0.4%; Real Final Sls +0.8%
–Inventories Added 1.94 Pts, May Slow Q1; Biz Spending Slowed; PCE +2%
By Joseph Plocek
WASHINGTON (MNI) – The initial U.S. Q4 GDP report was worse than
expected, with rising consumption and inventories being offset by a
cutback in business spending, and with slack demand calling into
question whether growth can establish much steam in Q1.
Q4 real GDP printed +2.8%, under the +3.0% median estimate in the
Market News International poll of economists. Real final sales were
even softer at +0.8% as inventories made up most of the advance. This
was the worst showing for final sales since Q1, when they were flat;
GDP growth languished in H1:2011 as a result.
The composition of Q4 GDP is setting up for a weaker Q1, as a
slower inventory build will cut growth. The Commerce Department assumed
higher inventories and a rising trade deficit for missing data.
Underlying consumption was decent. Real consumption rose 2.0%, led
by +14.8% in durables spending, mainly reflecting the jump in auto
sales. In turn this was due to the lessening of supplier shortages
after Japanese and Thai factories returned to production following
Nondurables spending posted +1.7% and services +0.2%. Within
services, household utilities fell $13.2 billion as mild weather and
lower oil prices cut costs. Healthcare costs were up $4.1 billion after
falling $2.2 billion in Q3.
Businesses did not step up: nonresidential fixed investment rose
just 1.7%. Business spending on structures fell 7.2%, and spending on
equipment & software advanced just 5.2%, the slowest pace since Q2:09 in
recession. Tax depreciation schedules were cut back at the end of 2011
and it appears there was not a surge to get new equipment into place.
Inventories added 1.94 points to Q4 real growth after subtracting
for two periods. Some of the surge was catch-up in the auto industry,
but any retailer overhang could be worked off ahead.
Real exports were up 4.7% and real imports up 4.4%.
Government spending was a drag. Real federal spending fell 7.3%,
led by -12.5% for defense. As the U.S. commitment to Asia winds down,
further defense cuts are expected. Real state and local spending fell
2.6% after -1.6% in Q3, in an on-going downtrend.
GDP prices printed +0.4%, and core PCE prices +1.1%.
The bottom line from slower-than-expected Q4 GDP growth is that Q1
is no longer going to be thought coming off a fast pace. Rather, the
U.S. appears to be posting further restrained growth and there is no
special momentum that can be expected to carry into Q1.
GDP Components: Q1 Q2 Q3 final Q4 initial
Real growth +0.4% +1.3% +1.8% +2.8%
Real final sales +0.0 +1.6 +3.2 +0.8
PCE +2.1 +0.7 +1.7 +2.0
Nonres fixed invest +2.1 +10.3 +15.7 +1.7
Res fixed invest +2.4 +4.2 +1.3 +10.9
Net Exprt Contrib cut 0.34 add 0.24 add 0.43 cut 0.11
Inventory Contrib add 0.32 cut 0.28 cut 1.35 add 1.94
**Market News International Washington Bureau: (202)371-2121**