Moderate Growth Expected In Upcoming US GDP Report For Q4

The US economy remains on track to expand at a moderate pace in the final three months of 2019. The outlook is based on a median nowcast for the initial estimate of the fourth-quarter GDP report that’s scheduled for release by the Bureau of Economic Analysis on Jan. 30. If correct, output will rise at or near Q3’s pace, which suggests that recession risk remained low through the end of last year.

Today’s revised data points to a 1.9% increase in GDP for Q4 via the median nowcast for a set of estimates compiled by The Capital Spectator. The projected gain is unchanged from the median nowcast published on Dec. 26. The current Q4 estimate is slightly softer vs. Q3’s 2.1% rise. Given the standard amount of uncertainty that accompanies any nowcast, it’s reasonable to view today’s median projection as more or less anticipating a continuation of the recent growth trend in the July-through-September period.

A similar estimate for Q4 GDP growth is reflected in the recent update of US Composite PMI Output Index. This survey-based indicator, which includes data for the services and manufacturing sectors, is projecting a moderate increase in economic activity, based on the year-end profile. “The overall survey results are indicative of GDP rising at a relatively modest annual rate of 1.8% in December,” says Chris Williamson, chief business economist at IHS Markit, which publishes the PMI numbers.

Although the Q4 data is expected to show that a softer-but-still-persistent expansion continued through the end of 2019, the wild card for this year is the recent surge in geopolitical risk linked to the escalating conflict between the US and Iran. The situation remains volatile: Iran fired missiles at US military bases in Iraq earlier today in retaliation for the death of an Iranian general by a drone strike authorized by President Trump last week.

The economic outlook may be precarious, depending on how the US-Iran conflict unfolds in the days and weeks ahead. The main risk is that the tit-for-tat military strikes in recent days expand into a wider battle that shuts down the Strait of Hormuz, a critical choke point for Middle East oil exports. In that scenario, oil prices could spike higher, creating substantial headwinds for the global economy.

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