When commenting earlier on the GDP number we noted that the sellside brigade is about to start coming out with Q1 GDP "warnings" now that inventories will likely subtract between 0.5% and 1% from growth in the current quarter. Sure enough here is Goldman with the first warning saying that "The composition of growth was slightly negative for the Q1 outlook, in our view." That's not surprising. What is is that also according to Goldman, the auto sector contributed 0.3% to the overall GDP number. Which means that ex inventories and autos (sold courtesy of NINJA loans provided by Uncle Sam as discussed extensively every month with the release of the Fed's Consumer Credit number), the US economy grew a meaningless 0.5%! And this in the quarter when the US economy was supposed to be on a tear. We are now fairly concerned that there is an outright chance of economic contraction in Q1.
BOTTOM LINE: Q4 GDP growth slightly worse than expected. Compared to our forecasts, details showed more inventory growth, less consumer spending and less business investment.
1. Real GDP increased by 2.8% (annualized) in Q4, a bit weaker than the consensus had expected. The composition of growth was slightly negative for the Q1 outlook, in our view. Growth in domestic final sales--GDP less inventories and net trade--was just +0.9%, in contrast to our expectations for +2.0%. The weakness reflected: (1) slightly weaker than expected consumer spending of +2.0%; (2) weaker than expected business fixed investment, reflecting a 7.2% decline in structures investment; and (3) a 12.5% contraction in federal government spending on national defense. National defense spending tends to be volatile, and we would therefore discount this component as a signal about the near-term growth outlook. The misses on consumer spending and business investment are arguably more meaningful.
2. Among the other details, inventories increased by $56bn during the quarter, adding 1.9 percentage points (pp) to GDP growth--much more than we had expected. In contrast, net exports actually subtracted 0.1pp from growth. We had forecast a positive contribution from net trade of +0.5pp. GDP excluding motor vehicles increased by 2.5%, implying that the rebound in the auto sector added 0.3pp to growth.
3. The GDP price index increased by just 0.4% (annualized) in Q4, far below consensus expectations for a 1.9% increase. Nominal GDP growth was therefore quite soft at just +3.2%. The core PCE price index rose by 1.1%, slightly above consensus forecasts.