Daily Spotlight: GDP Stronger Than Expected at 3.3%

Summary

According to the advance estimate released today by the Bureau of Economic Analysis, U.S. Gross Domestic Product expanded in the fourth quarter at an annualized rate of 3.3%. That’s well above the 1.7% consensus, but below the 4.9% growth we saw in the third quarter. Areas of strength in 4Q included Exports of Services, which rose at a 9.5% rate; Personal Consumption Expenditures on Durable Goods, which rose at a 4.6% rate; Investment in Structures, which advanced at a rate of 3.2%; Exports of Goods, which climbed at a 4.7% rate; and Government Spending, which rose 3.3%. Segments of the economy that struggled or worked against GDP growth included Imports (which were up 1.9%). The GDP report also contains data on inflation, which was encouragingly mild amid the economy’s strong growth. The PCE Price Index increased 1.7% in the fourth quarter, compared with an increase of 2.6% in the third quarter. Excluding food and energy prices, the PCE Price Index increased 2.0%, compared with an increase of 2.0% in the previous quarter. In our view, the report this morning indicates that the consumer sector remains a resilient driver of overall GDP, even in the wake of the Federal Reserve’s 11 rate hikes to tame inflation. After the report, futures on the S&P 500 rose and the yield on the 10-year Treasury note declined slightly. The report showed that the economy is in no danger of slipping into recession and provided encouraging evidence that the Fed is successfully reducing inflation to its target levels. Based on futures trading, there was little change in the expectation that the Fed will maintain its 5.25%-5.5% policy target at its meeting later this month. Futures continued to show that the chance of a rate cut in March is slightly better than 50%.

Source: finance.yahoo.com