Q4 GDP – A Headline Miss, but Underlying Conditions Remain Solid


The first reading of Q4 GDP growth came in slightly below estimates at 2.6%, but the underlying details of the report showed that U.S. economic growth remains on solid ground. The weakness of the headline number was driven entirely by a drawdown in inventories and a surge in imports, which are unlikely to be sustained moving forward.

Excluding these factors, underlying economic conditions accelerated, with final sales to domestic purchasers growing by 4.3%, the strongest reading since 2014. Personal Consumption Expenditures, which makes up about two thirds of economic activity, grew by 3.8% as consumers benefited from a robust job market and elevated levels of consumer confidence. Fixed Investment was also strong as businesses continued to invest at a healthy pace, possibly augmented by the upcoming tax cut. Finally, Government Consumption was a positive contributor to growth, with both federal and local governments increasing their outlays.

Overall, the report showed that the economy is entering 2018 with strong momentum.