US ended 2016 on high note (despite the GDP figures)

US GDP data distorted by swing in exports

The US economy appeared to cool in the final quarter of 2016 with GDP growth slowing to 1.9% (quarter on quarter annualised) from 3.5% in the period before. However, the latest number is distorted by an enormous swing in exports which surged 14.5% in the third quarter (Q3) only to fall 7% in the fourth quarter (Q4).

The shift seems to be related to commodities, so if we strip this out and focus solely on domestic demand then activity picked up in Q4 to 3.6% from 2.7% in Q3. This is flattered by a swing in inventories of unsold goods, but even adjusting for this, we estimate that domestic final sales picked up to 2.6% from 2.2% in Q3 (all figures annualised).

Within the breakdown, the first quarterly pick-up in equipment investment for a year caught the eye and reflects the upturn in oil prices and the rig count.

US economy has made solid start to 2017

So the US appears to have ended 2016 with growth on a gently rising trend with capital expenditure improving. All good, but will it be sustained?

Notwithstanding today’s disappointing durable goods figures, the latest purchasing managers’ indicators (PMIs) show activity has made a solid start to the year, suggesting that the first quarter will also be firm.

Looking further ahead though, we would caution that higher oil prices, whilst helpful in the near term, will push up inflation and squeeze the consumer. Growth will then moderate in the second half before President Trump’s fiscal stimulus comes through to lift activity towards the end of the year.