Q4 GDP Unexpectedly Misses, Rising Only 2.6% Dragged By Soaring Trade Deficit

Consensus expected a 3.0% GDP print, with whisper numbers well above that and some expecting a print as high as 5%. However it was not meant to be, and as the BEA reported moments ago, the first estimate of Q4 GDP came in at  2.6%, missing expectations and below last quarter's 3.2% GDP print, and the lowest since the first quarter of 2017, largely as a result of a surging trade deficit in the fourth quarter.

What happened?

First the good news:  Personal consumption rose 3.8% in 4Q after rising 2.2% prior quarter. Final sales to private domestic purchasers q/q rose 4.6% in 4Q after rising 2.2% prior quarter; largest rise since Q3 2014. Spending contributed 2.58% to the bottom-line GDP print, the highest quarter since Q4 2014, however as we discussed previously, much of it was the result of a surge in credit card-funded spending while the personal savings rate dropped to levels last seen during the financial crisis.

Some more good news: nonresidential fixed investment - or spending on equipment, structures and intellectual property - rose 6.8% in 4Q after rising 4.7% prior quarter. It contributed 0.84% to the annualized Q4 GDP's bottom line.

However, both of these items were offset by a bigger than expected inventory destocking, as Inventories subtracted -0.67% from the final GDP number, the biggest drop since Q1.

But most notable was the sharp drop in GDP as a result of surging imports which subtracted -1.96% from the final GDP number. This was the biggest hit from imports to GDP going back all the way to Q3 2010. Net of exports, trade resulted in a -1.14% drag on GDP. Needless to say, for a president who is focused on boosting exports and reducing the US trade deficit, this number will only provoke more speculation about boosting US exports and thus, the possibility of trade war.

 

df

All of the above broken down visually by component:

Some other observations: real disposable personal income—personal income adjusted for taxes and inflation —increased 1.1% in the fourth quarter after increasing 0.5% in the third quarter. Personal saving as a  percentage of disposable personal income was 2.6% in the fourth quarter, compared with 3.3% in Q3,

For inflation watchers, prices of goods and services purchased by U.S. residents increased 2.5% in the fourth quarter
after increasing 1.7% in the third quarter. Excluding food and energy, prices rose 1.9% in the fourth quarter after increasing 1.6% in the third quarter.

Finally, for the year 2017, real GDP increased 2.3% compared with 1.5 percent in 2016.

The increase in real GDP in 2017 reflected increases in consumer spending, business investment, and exports. These contributions were partly offset by a decrease in inventories. Imports increased. Prices of goods and services  purchased by U.S. residents increased 1.8 percent in 2017, compared with an increase of 1.0 percent in 2016. Excluding food and energy, prices increased 1.7 percent in 2017 after increasing 1.4 percent in 2016.

Overall, a good first year for Trump who however will surely be disappointed by the substantial drag resulting from the trade deficit.

 

Comments

Snaffew TuPhat Fri, 01/26/2018 - 10:39 Permalink

and we never will make it again because the US worker requires comparatively extremely higher wages, medical, pensions, four bathrooms for each of the sexes and handicapped access, crisis counselors for anytime their feelings are hurt, unions, massive government regulations, the list goes on and on.  The US will never be able to compete on a global scale unless all of the above items are stripped away and workers take a 75 percent wage cut.  It's NEVER going to happen.  Manufacturing has long since died in the USA going all the way back to the end of WWII.

In reply to by TuPhat

LawsofPhysics Fri, 01/26/2018 - 08:54 Permalink

Nominal versus real terms...

"Mark to market" versus "mark to fantasy" accounting...

Allow me to clarify, in real terms GDP have been negative for quite a while, but perhaps I can interest you in a financial "product"...

suckers.

J J Pettigrew spastic_colon Fri, 01/26/2018 - 09:18 Permalink

You see if something that you buy once every 8 years, like a tv set, computer memory, gets cheaper because of mass production capabilities, its deflationary

But if something you MUST buy each month, like health insurance, spikes 50%......it is buried due to its CPI weighting down there with magazine prices and firewood (no kidding, look it up)

 

http://www.businessinsider.com/breakdown-of-consumer-price-index-basket…

In reply to by spastic_colon

Fiat Burner Fri, 01/26/2018 - 08:56 Permalink

Annual GDP is still only 2-3% just like Obozo's term, yet the narrative is that Trump is the second coming of Christ for the economy.  He's a good salesman, I'll give him that.

buzzsaw99 Fri, 01/26/2018 - 08:57 Permalink

Prices of goods and services purchased by U.S. residents increased 1.8 percent in 2017...

oh please, some of the socks i buy cost $13 per pair. no inflation, lolz.

lester1 Fri, 01/26/2018 - 09:00 Permalink

Trump needs to end NAFTA immediately and slap on more tariffs on Chinese made goods. That will bring down the trade deficit and force companies to move jobs and production back to the US.

 

More jobs and production in the US

, the higher GDP will go.

 

This should be a no brainier for Trump!

Justin Case lester1 Fri, 01/26/2018 - 10:14 Permalink

slap on more tariffs on Chinese made goods.

You realize that those goods are made by murican companies that left murica and set up shop in China? The term shooting yoar self in the foot comes to mind. To appreciate the number of companies, you would have to Google it, b/c the list is too yuge to post here.

In reply to by lester1

BigWillyStyle887 Fri, 01/26/2018 - 09:25 Permalink

but but but Trump said that the economy is super strong and to ignore the millenials and generation zyklonB having no fucking future whatsoever unless you count misery and a much lower standard of living with a side of civil war 

MuffDiver69 Fri, 01/26/2018 - 09:34 Permalink

Hehehehe 

https://www.reuters.com/article/us-usa-economy-gdp/u-s-second-quarter-gdp-growth-revised-up-fastest-in-over-two-years-idUSKCN1BA1JN

 

Gross domestic product increased at a 3.0 percent annual rate in the April-June period, the Commerce Department said in its second estimate on Wednesday. The upward revision from the 2.6 percent pace reported last month reflected robust consumer spending as well as strong business investment.

Silver Savior Fri, 01/26/2018 - 10:02 Permalink

I adopted the notion that if you don't expect anything then you will never be disappointed. Works without fail.

And what's so great about personal consumption? You had to work like a slave to get the money, got taxed then blew it on something instead of buying gold with it. 

Bad for you, good for them. 

Don Sunset Fri, 01/26/2018 - 11:33 Permalink

Not enough hurricanes, fires, mudslides, blizzards and earthquakes to drive up GDP?  I thought we had plenty of these.

I know there are record levels of debt driving growth.

Maybe what we need is a good super volcano.

I Write Code Fri, 01/26/2018 - 12:28 Permalink

Imports?  Imports?  What imports?  I thought everything was made in Pittsburg or lower Manhattan.  Someone should look into this.  Are we importing too many bitcoins?

francis scott … Fri, 01/26/2018 - 12:40 Permalink

Why doesn't someone do a chart on how much of the US' GDP

is personal consumption, how much is US spending on its

military, and how much are the exports of weapons by US

defense companies to the forced buyers in NATO and other 

foreign nations?

martygraw Fri, 01/26/2018 - 17:54 Permalink

Manufacturing in the USA is at all time highs we have never produced more goods, and at such a high level. Anyone talking about foreign workers and wages in the USA being to high is just repeating what they have heard. It is automation that has hurt the worker, not foreign flight of business. 90% of jobs lost in manufacturing in the USA is from automation.

https://www.marketwatch.com/story/us-manufacturing-dead-output-has-doub…