The US economic expansion picked up in the fourth quarter, data out Thursday showed.
The 6.9% rate represented a pronounced acceleration from the prior quarter’s pace, and easily topped forecasts.
Consensus expected 5.5% on the headline (figure below). The range, from nearly six-dozen economists, was 4% to 8.3%.
Inventories played a big part. “The increase in real GDP primarily reflected increases in private inventory investment,” the government said.
Inventories “are expected to remain a tailwind for economic growth this year,” Bloomberg wrote, adding that when “faced with persistent supply shortages, businesses had been relying on inventories to keep up with robust merchandise demand [and] are now beginning to restock, which will help bolster production.”
The figures come at a critical juncture. Growth concerns are mounting on the eve of what’s widely expected to be an aggressive Fed tightening campaign that some critics charge is starting far too late.
Elevated inflation is weighing on consumer sentiment. Although wage gains are robust, they haven’t kept up with price increases in aggregate. Annual real wage growth was deeply negative in December, a month when retail sales plummeted.
Thursday’s GDP data showed personal consumption rose 3.3% in Q4 (figure below). That was just short of the expected 3.4% gain.
That’s marginally disappointing, and may add to concerns about the resiliency of the economy as the Fed embarks on what some have already decided is an ill-fated journey to normalize monetary policy.
That’s unlikely to be anyone’s takeaway, though. The Fed is predisposed to viewing any weakness in consumption as linked to Omicron and therefore not particularly relevant for policy. A mostly in-line, backward-looking consumption print is probably immaterial at this point.
Friday’s PCE data for December will give the market a more granular look at the consumer. Shortly thereafter, investors will get the final read on the University of Michigan’s sentiment gauge for this month.
Nonresidential fixed investment rose 2% in Q4. I’ll call it “steady” (figure below), although “subdued” might be a better adjective.
Notably, the pace of final sales to private domestic purchasers doubled from Q3, to 2.8%. Government spending slumped across the board, falling at the federal, state and local levels.
The surge in the price index (6.9%) was far more acute than expected. Consensus was looking for 6%. Core PCE was in line at 4.9%, up from 4.6% in Q3.
All in all, the advance read on GDP will likely be seen as validating the Fed’s hawkish turn.
On one hand, you could argue the optically solid read on the economy suggests growth is stable enough to support rate hikes, and therefore risk assets should cheer the headline beat.
On the other hand, you could simply suggest that good news is unequivocally “bad” at this juncture, considering the read through for policymakers on the brink of panicking in the face of the highest inflation since Jerome Powell was 29 years old.