Q4 GDP Revision

February 26th, 2016 10:14 am | by John Jansen |

Via Millan Mulraine at TDSecurities:

TD SECURITIES DATAFLASH                   

US:  Economic Performance Better Than First Thought

  • Q4 GDP growth was revised higher, as the second estimate was pushed to 1.0% q/q from 0.7% q/q. This was a far better performance than the market consensus for a downgrade in the GDP estimate to 0.4% q/q.
  • The upgrade in the GDP growth estimate was mostly on account of revisions to inventories. The drag from this component was revised from -0.5ppt to -0.1ppt. Net trade was also revised higher
  • Despite the better than expected headline print, the underlying tone of this report was weak.

The US economy fared much better than previously thought in the last quarter of 2015, with the estimate for Q4 GDP growth revised up to 1.0% q/q from 0.7% q/q. This was a far better performance than the market’s expectation for a slight downgrade in the growth estimate to 0.4% q/q. The upgrade in GDP was driven by the upward revision to the estimate for inventory levels, with the drag from this component lowered from -0.45% to -0.14%. Similarly, the net trade deficit was also reduced, resulting in that segment of the economy subtracting less from growth than previously estimated, -0.25ppt versus the prior estimate of -0.47ppt. On the other hand, the estimate for consumption activity was lowered to 2.0% from 2.2%, suggesting a weaker than expected showing in this key segment of the economy than previously thought. Government spending was also lowered. Final domestic sales were revised from 1.6% to 1.4%.

Overall, despite the better than expected headline print, the underlying tone of this report was less than meets the eye. Even though the 1-handle on GDP is in contrast to the expectation for a downward revision to 0.4% q/q, the improvements occurred in the wrong places. In the first place, the downgrade in consumption activity speaks to a softening in a key component of GDP and the sharp upward revision to inventories will result in a weak hand-off to Q1 GDP tracking. In fact, our current tracking is now at 2.1% from 2.5% for Q1. For the Fed, the upgrade in the Q4 GDP growth will likely offer some encouragement, though it is unlikely to change the current bias to remain on the sidelines at the March meeting as they assess the impact of the recent global headwinds on growth. We continue to see the next hike at the June FOMC meeting.

 

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