More Confirmation of Good Momentum at Year End
- Real Gross Domestic Product for 2017Q4 increased at a moderate 2.6 percent annualized rate.
- New Orders for Durable Goods increased at a 2.9 percent monthly rate in December.
In this morning’s key economic releases we see more evidence of good momentum in the U.S. economy at year-end 2017, which we expect to carry over into early 2018. The first estimate of real GDP growth for 2017Q4 came in a little weaker than expected, at a moderate 2.6 percent annualized rate. However, thedetails were stronger than the headline suggests. Digging into the details, we see that most components ofGDP accelerated in Q4 but the headline number was held down by inventories and net exports. Real consumerspending, accounting for two-thirds of GDP, was strong in Q4, increasing at a 3.8 percent annualized rate,boosted by robust post-hurricane auto sales. Fixed investment numbers were also strong. Business fixedinvestment increased at a 6.8 percent annualized rate, led by investment in equipment, which increased at an 11.4 percent rate. Residential investment increased at a solid 11.6 percent annualized rate. Inventories were adrag however, declining by $29 billion ($2009) in Q4, which pulled 0.67 percentage points from the headlinegrowth rate. Net trade was also a drag. The real balance of trade deteriorated in Q4 as imports surged (in partdue to the launch of the iPhone 10). Real net trade clipped 1.13 percentage points from headline GDP growth. Government spending added to Q4 real GDP, growing at a 3.0 percent annual rate, the strongest growth sincethe second quarter of 2015.
New orders for durable goods increased by 2.9 percent in December, the fourth increase in the last five months. There was support from the volatile aircraft components. Civilian aircraft orders were up 15.9percent, while military aircraft orders jumped by 55 percent. Other heavy industries were reasonably strong. Orders for primary metals products gained 1.4 percent. Fabricated metals orders were up 0.9 percent. Machinery orders gained 0.6 percent. New orders for computers and electronics products eased by 0.2percent, and new orders for electrical equipment fell by 0.9 percent. Together, those last two components held down the core measure, nondefense capital goods excluding aircraft, which eased by 0.3 percent in December after increasing in October and November.
Market Reaction: U.S. equity markets open with gains. The 10-year Treasury bond yield is up to 2.65 percent. NYMEX crude oil is up to $65.91/barrel. Natural gas futures are up to $3.17/mmbtu.
For a PDF version of this report click here: GDP_01262018.
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