United States: GDP growth ebbs in the fourth quarter
GDP growth slowed to 2.9% in seasonally adjusted annualized rate terms (SAAR) in the fourth quarter, from 3.2% in the third quarter. While the reading beat market expectations, it was also flattered by an inventory build-up which was responsible for around half of Q4’s growth.
Private consumption growth stayed robust at 2.1% SAAR in Q4 compared to a 2.3% expansion in Q3, reflecting stronger spending on both goods and services and aided by ongoing healthy payroll gains. Public spending was stable at a 3.7% expansion in Q4 (Q3: +3.7% SAAR). Meanwhile, fixed investment contracted 6.7% in Q4, marking the worst reading since Q2 2020 (Q3: -3.5% SAAR). The sharper fall was driven by a slowdown in nonresidential investment, likely due to higher interest rates and business’ concern over the economic outlook.
On the external front, exports of goods and services contracted 1.3% in Q4, marking the worst result since Q1 2022 (Q3: +14.6% SAAR). Lower goods exports drove the reading, amid slowdowns in key trading partners. Conversely, imports of goods and services contracted at a more moderate pace of 4.6% in Q4 (Q3: -7.3% SAAR).
On an annual basis, economic growth cooled to 1.0% in Q4, from the previous quarter’s 1.9% expansion.
The Consensus is for a slight GDP contraction in Q1, on a tougher base effect following the unexpectedly strong Q4 reading, a weaker contribution from inventories, and a slowdown in private consumption amid tighter financial conditions. Indeed, December’s retail sales data suggests private consumption was already losing pace at the end of Q4.
On the latest reading, Nomura analysts said:
“The composition of real GDP growth suggests weaker economic activity than the headline number. Out of 2.9% growth, the contributions from volatile inventory investment and net exports accounted for 1.5pp and 0.6pp, respectively. Strength in inventories appeared to reflect unintended inventory buildup, while the positive contribution from net exports was due to weak imports, both of which point to softening domestic demand.”