As the Bureau of Economic Analysis (BEA) reported today, real GDP grew by an annu-alized 1.9% versus Q3 2016 between October and December, according to the advance estimate. The result slightly undershoots both our estimate and that of the consensus. Compared to the same quarter of the previous year, economic output grew by 1.9% between October and December.
The markets showed a slightly disappointed reaction to the GDP figures. US government bond prices rose and the dollar depreciated by 0.3 cents versus the euro.
The figures reported today confirm our assessment that the US economy is on a very good path. Although economic growth in Q4 clearly undershoots the plus registered in Q3, it should however not be overlooked that this had been a countermovement to the very weak first half of the year. An increase in real GDP by more than 3% qoq annualized would, in any case, not be sustainable. This is more likely the case for the plus of an annualized 1.9% qoq reported today, even though also this growth rate slightly exceeds the 1.25% - 1.5% yoy potential growth estimated by us.
The fact that almost all components made a positive contribution to economic output in Q4 is very gratifying. Although exceptions to this are non-residential construction and net-exports, the result however has to be relativized in both cases. In the three preceding quarters, non-residential construction without the oil production and mining sectors had shown an utmost positive development so that a setback was likely. Now, the latter was slightly larger than we had expected. At the same time, investments in the oil production and mining sectors recovered less strongly than assumed by us. In the coming quarters, prospects however remain very favourable for non-residential construction.
In arithmetical terms, the net-exports have dampened the growth in real GDP by 1.7 percentage points annualized, and thus slightly more strongly than we had forecast. In the past ten years, there was no quarter in which net exports had a more dampening effect. It is therefore very likely that net-exports will slow economic growth to a much lesser extent in the coming quarters.
On the other hand, we see a good chance that the correction at inventory investments is not yet over even now. Although inventories in the past quarter were stocked up by USD 48.7 bn in real terms, which corresponds to a positive growth contribution to real GDP increase by 1.0 percentage points, maximal inventory investments in earlier inventory cycles however exceeded USD 100 bn in each case.
Following two weak quarters, residential construction investments as expected - again presented themselves as strong at the end of 2016. This supports our thesis that the cause of the decline in investments in residential property was a shortage in supply instead of a lack of demand. Prospects for residential construction investments therefore re-main very good.
Thanks to the still considerable employment growth as well as the stronger rise in wages, prospects remain upbeat for private consumption, as well, which saw a gain by 2.5% qoq annualized in Q4. In the coming quarters, the US economy should see annualized growth by more than 2% qoq on average. We hold on to our forecast for a growth in real GDP by 2.4% in the current year.
Monetary policy implications:
The US central bank is likely to be quite happy with the figures reported today. The economy continues to grow strongly enough for demand for labour to remain high and for inflation to pick up slowly. At the same time though there are no signs of overheating of the economy. Monetary authorities should feel confirmed in their intention to carry out cautious interest rate hikes.
Gross Domestic Product
real, seasonally adjusted, percent change from preceding period, annualised
Source: Bloomberg, RBI/Raiffeisen RESEARCH
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Creation time of this publication: 27/01/2017 04:55 PM (CET)
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