While the Davos World Economic Forum and some of its speakers absorbed a lot of attention, the U.S. economy confirmed it was doing just fine despite some blemishes. The U.S. Commerce Department released fourth quarter (Q4) 2017 “advance” estimates of US GDP on Friday night Australian time and they indicate U.S. GDP grew at an annualised growth rate of 2.6%. The growth rate was under the 2.9% median of market estimates and lower than the third quarter figure of 3.2% but generally economists and other commentators did not seem perturbed.
US GDP numbers are published in a manner which is different to most other countries; quarterly figures are compounded to give an annualised figure. In countries such as Australia and the UK, an annual figure is calculated by taking the latest number and comparing it with a figure from a year ago. The diagram below shows US GDP once it has been expressed in the normal manner.
ANZ senior economist Daniel Gradwell saw some good and bad in the figures. “The increase was slightly below consensus of 3%, but underlying details were reasonable.” However, in a comment reminiscent of the discussion going on in Australia, he remarked on the household income issue. “Durability of consumption growth will be questioned with spending continuing to outpace income growth, pushing the saving rate to a decade low of just 2.6%.”
NAB senior economist David de Garis shared this mixed viewpoint. “On the surface this was technically a ‘miss’, but the quality of the report was high from a growth momentum viewpoint.” He pointed to the draw-down in car inventories as sales recovered after the hurricane season as a source of temporary GDP weakness. At the same time an increase in imports on the back of domestic demand and a lagged response to a higher USD through 2014 to 2016 “was a bit more sinister.” Overall, he thought the figures indicated U.S. GDP growth had gained a certain amount of momentum.
Yields of US Treasury bonds were slightly higher on the day. 2 year bond yields gained 2bps lower to 2.10% and 10 year bonds were 4bps higher at 2.66%. The USD was weaker against all major currencies. This estimate is the first of four estimates and subject to three more revisions over the next two months.