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

US GDP growth cooled in Q4 but underlying trends remain solid.

27 January 2017

Keith Wade

Keith Wade

Chief Economist & Strategist

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.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.