U.S. Q4 GDP growth downwardly revised to 2.2 pct, economy likely to grow 2 pct in Q1 2019

The U.S. fourth quarter economic growth was downwardly revised in the third estimate on lower domestic activity. The third estimate of the fourth quarter growth was reported at 2.2 percent, four-tenths lower relative to the initial estimate of 2.6 percent. Most of the downward revision came in the area of personal consumption spending, as was expected earlier, given the sharp downward revisions to December retail sales data. Business fixed investment and government spending were the other subcomponents that were downwardly revised. This was partially countered by an upward revisions to net exports.

Inventory investment changes were small and had not impact on GDP growth in terms of contribution. With these revisions, final sales to domestic purchases, a gauge of domestic activity was downwardly revised to 2.1 percent, lowest since the first quarter of 2018. However, at 2.1 percent, this measure is only slightly below its pre-fiscal stimulus average. Moreover, the softness in personal consumption and government consumption and investment is believed to be amplified to some degree by the partial government shutdown, noted Barclays in a research report.

“We expect government spending to contribute modestly to growth in the coming quarters, and see personal consumption spending remaining a key driver for growth. We continue to forecast Q1 19 GDP growth at 2.0% q/q saar”, said Barclays.

Delving into details, PCE growth was downwardly revised to 2.5 percent, deducting a bit more than 0.2 percentage points from headline GDP. All of the revision came from goods consumption, especially durable goods. These revisions are consistent with retail sales data for the quarter, which recorded a sudden fall in December sales.

“That drop was likely a one-off, given that it coincided with a period of asset market losses, uncertainty over the government shutdown, and the fact that sales may have been pulled forward to the Black Friday weekend in November”, stated Barclays.

Indeed, the recovery in January sales implies that consumption spending continues to be solid. Moreover, strong labor markets and wage growth, a high saving rate, and sound household balance sheets taken together are possibly to keep consumer spending supported in the quarters ahead.

Business fixed investment was the second major source of downward revision, deducting a bit over one tenth from headline GDP. Within this category, revisions, were seen in intellectual property and residential investment. The downward revision to the latter was expected, given downward revisions to construction spending data for November and December.

Government consumption was also downwardly revised, driven by lower growth in state and local government spending. Thus, this category deducted 0.1 percentage point from GDP. This was countered by an upward revision to net exports, whose drag on the fourth quarter GDP was lowered by one-tenth.

At 19:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 124.797 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex