US Economy Grew 1.9% In Q4, Unexpectedly Missing Expectations Despite Stronger Consumer Spending

Following a series of better than expected GDP-feeding prints, consensus had expected Q4 GDP to tick higher in the first revision released today, rising from 1.9% to 2.1%. However, that did not happen and instead, the revised print came in unchanged at 1.9%. Notable underlying revisions include: an upward revision in consumer spending, both in services and goods; a downward revision to business investment, mostly in intellectual property products and equipment; and a downward revision to state and local government spending, primarily in structures.

Despite the headline miss, the revised data showed a solid rebound in Personal Consumption Expenditures, which rose 3.0%, higher than the 2.6% expected; furthermore, printing at 2.05% annualized, Consumption alone was higher than the overall GDP of 1.86%.

The reason for the miss was a decline in Fixed Investment which slid from 0.67% to 0.51% as initial CapEx reads appear to have been weaker than expected, coupled with a negative revision to both Private Inventories, down from 1.00% to 0.94% and the contribution from Government, which subtracted another 0.15% point.


Net trade remained flat, and was the biggest detractor from Q4 growth, taking away some 1.7% as the Q3 surge of exports to China was offset.

Of note: PCE prices failed to hit the expected 2.2% increase in the quarter, rising 1.9%, after increasing 1.5% in Q3, thus giving the Fed some more breathing room before hiking. Additionally, core PCE rose 1.2%, after rising 1.7% in the prior quarter, suggesting to Janet Yellen there is still some price slack, and the possibility of a rate hike may be more remote.

For the year 2016, real GDP increased 1.6% , compared with 2.6% in 2015. The increase in real GDP in 2016 reflected increases in consumer spending, residential investment, state and local government spending, exports, and federal government spending. These contributions were partly offset by declines in private inventory investment and business investment. Imports increased.