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Q4 GDP Revised Sharply Higher To 2.9% As US Economy Grew 2.3% In 2017

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After the virtually unchanged first revision to the original 2.5% Q4 GDP print, analysts were expecting a modest improvement in today's final revision to the GDP estimate from the last quarter of 2017. However, the final number ended up being materially higher than expected, with the 3rd Q4 GDP estimate rising at an annualized 2.9% (2.88% to be precise), above the 2.7% estimate, and well above the 2.5% revised number, entirely due to a small upward revision in personal spending, and a smaller drag from inventory destocking.

And with the final number now in, we now know the US economy grew at a rate of 2.3% in 2017, well above the 1.5% 2016 growth rate (if below the 2.9% in 2015), thanks to the following quarterly growth rates: 1.2%, 3.1%, 3.2%, and 2.9%.

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The upward revision to real GDP growth was accounted for by revisions to consumer spending on services and to  private inventory investment:

  • Personal Consumption rose from 2.58% to 2.75% of the bottom line GDP
  • Fixed Investment was virtually unchanged (from 1.29% to 1.31%)
  • Private Inventories were a far smaller drag, shrinking from -0.7% to 0.53%
  • Net Trade was also flat, revised from -1.13% to -1.16%
  • Government also barely moved, from 0.49% to 0.51%.

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Consumer spending rose at an annualized 4.0% in 4Q after rising 2.2% prior quarter, beating estimates of 3.8% (as noted above, this contributed 2.75% of the final 2.88% Q4 GDP number).

In terms of numbers that the Fed will focus on, prices of goods and services increased 2.5% in the fourth quarter after increasing 1.7% in the third quarter. Excluding food and energy, prices rose 2.0% after increasing 1.6% .

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Meanwhile, the GDP price index rose 2.3% in 4Q after rising 2.1% prior quarter; while core PCE q/q rose 1.9% in 4Q after rising 1.3% prior quarter, in line with expectations.

Today's release also disclosed that corporate profits decreased 0.1 percent at a quarterly rate in the fourth quarter after increasing 4.3 percent in the third quarter.  Profits of nonfinancial corporations increased 1.5% in the fourth quarter, profits of financial corporations decreased 3.0%, and profits from the rest of the world decreased 1.3%.  On an annual basis, corporate profits were up 2.7% in 4Q after rising 5.4% prior quarter.

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Overall, a strong end to the quarter and year, which however will mean that Q1 growth will have been pulled forward, and we expect downward revisions to Q1 GDP estimates later today.

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