Q4 GDP Growth Estimate Beat - Stocks Ignore It

Q4 GDP Growth Beats Estimates

The stock market fell on Thursday. Yet quarter over quarter annualized GDP growth beat estimates for 2.2%. It was 2.6%. 2018 was the first year since 2004 where GDP growth was above 2% in all four quarters (2.2%, 4.2%, 3.4%, and 2.6%). 

Stocks ignored the solid report because information on Q4 is old news. We are in Q1 where growth estimates are very low. The Atlanta Fed’s Nowcast is calling for just 0.3% growth in Q1. This quarter’s initial estimate is more useful than it usually is. Nowcast is getting a late start. 

Potentially negative growth is one way to put a damper on Q4 estimates being beaten.

GDP growth is looked at either on a quarter over quarter basis or an annual basis. That’s nothing new. Personally, I like looking at annual growth which is shown in the chart below. 

As you can see, growth was 3.08%. This is the first 3% print since 2005. The difference between quarter over quarter and annual growth was a hot topic on Thursday. 

Quarter over quarter annualized growth rate has been falling for 2 straight quarters. And it's about to fall a 3rd time. The chart below shows annualized growth is in an uptrend. This controversy will be immaterial after Q1 because it should look weak anyway you look at it.

(Click on image to enlarge)

Q4 GDP Growth - Strong Consumption Growth & Labor Market

GDP price index was up 1.8% which beat estimates by 0.1% and was the same as Q3. It’s great to see low inflation continue. 

Real consumer spending growth was 2.8% which makes the December retail sales report look like a temporary blip. Weak consumption growth won’t remain in a situation where there are low jobless claims and high real wage growth.  

The chart below shows the decomposition of Q4 real GDP growth. It’s different from the normal viewpoint which breaks down GDP growth by personal consumption, domestic investment, net trade, and government spending. 

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