The Atlanta Fed’s GDPNow lifted Q4 growth to 5.4%, highlighting strong consumption and investment; equities dipped, dollar firmed, while bond yields fell amid steady-rate expectations.
A closely-watched economic data released on Wednesday showed that the resilient U.S. economy may have continued to expand at a robust clip in the fourth quarter.
What Does Data Show? The Atlanta Federal Reserve’s GDPNow model showed that the U.S. economy may have grown at an annualized quarter-over-quarter pace of 5.4% in the fourth quarter. This marked a slightly upward revision from the 5.3% rate estimated on Jan.14.
Source: Atlanta Fed
This compares to the Bureau of Economic Analysis (BEA) preliminary estimate of 4.3% growth for the third quarter.
Source: BEA
The GDPNow, though not the official estimate of the Atlanta Fed, is a running estimate of real GDP growth calculated based on economic data available for the quarter including manufacturing and services activity, prices indicators, trade data and housing market readings.
Reflecting recent releases, the fourth-quarter real personal consumption expenditures (PCE) growth and fourth-quarter real gross private domestic investment growth were revised to 3.2% and 6.4%, respectively, from 3.1% and 5.1%. However, the contribution of net exports to fourth-quarter GDP growth has been adjusted downwards to 1.88 percentage points from 1.99 percentage points.
Trump Quotes Q4 Estimate At Davos: In his address to the World Economic Forum (WEF) held in Davos, Switzerland, President Donald Trump used the headline number to underline his economic achievement. “The United States is in the midst of the fastest and dramatically economic turnaround in the country’s history,” the president said. To make his case, Trump noted that the core inflation has been only 1.6% in the past three months, while fourth-quarter growth is projected to be 5.4%.
Implications For Market: The strong growth, underpinned by consumer spending and private investment, should lend credence to Jerome Powell-led Federal Reserve’s data-focus. The next rate-setting meeting is scheduled for Jan. 27-28 and the futures market has put the odds of a status quo stance at 95%, according to the CME FedWatch Tool. After three quarter-point cuts since September last, the Fed funds rate currently stands at 3.50%-3.75%.
How Market Reacted To Data: The E-mini S&P 500 futures pulled back sharply following the release of the data, although trading in the green. The U.S. dollar stayed firm but bond prices rose as yields moved lower.
The official (BEA) first estimate for fourth-quarter GDP is scheduled for release on Feb. 20, while the Atlanta Fed will update the GDPNow estimate yet again on Thursday.