Q4 Was Solid, Full Year Data Boosted By Stimulus

Today the BEA finally got around to releasing Q4 GDP numbers, about a month later than usual thanks to the government shutdown in late December and early January. Below we recap the contribution to growth in Q4 by expenditure category relative to Q3.

As shown, the consumer was a bit weaker in Q4 than Q3 thanks to weaker spending on services and non-durable goods. Consumer spending still added about 1.9% to total GDP growth and was by no means terrible, though. Housing continued to drag, with residential fixed investment shaving 14 bps off the total growth rate, while nonresidential fixed investment picked up sharply thanks to very strong transportation equipment investment and intellectual property products investment (namely software). In Q3, net exports crushed growth but the 2.33% contribution from inventories more than offset that factor, and this quarter the two were both much more reasonable with inventories adding 13 bps and trade subtracting 22 bps, both a bit stronger than we estimated last night in The Closer. Finally, both state and local government and the federal government consumed fewer goods and services and invested less than in Q4, reducing their support for growth.

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Finally, we note that 2018 was the first year since 2004 where no quarter reported growth of less than 2% (at annual rates). While that may seem like a very big deal, it’s worth a bit of context: 2018 saw a massive reduction in taxes coupled with higher expenditure numbers, a form of stimulus for activity. It’s notable that even with a stimulus equating to about 2% of GDP per the CBO the economy was still only able to grow about 2.9% (average of output by a quarter in 2018 vs 2017) to 3.1% (Q4 YoY) in 2018. While that doesn’t mean the economy is terrible, it’s important to emphasize that trend growth is just much, much lower than it used to be due to lower productivity growth, lower population growth, and other factors. 

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