Good News is Good News?
Slow down there, apes; it’s not like the economy makes sense just yet. Yesterday, the Commerce Department released the official™ numbers used to size up the U.S. economy for the fourth quarter. And judging by market reactions, investors loved it.
But, much like characters on dating shows like Love Island or The Bachelor, we have to wonder whether it’s for the right reasons. Well, let’s find out.
No. It isn’t. Okay, that’s it for Macro Monkey today. Bye, everyone!
JK jk, you apes know I could never do that to you. Let’s take a minute to comb through the data and find out why investors loved this latest GDP report, but just not for the reasons you might think.
GDP is made up of 4 parts: Consumption, Investment, Government, and Net Exports (CIGNX). Because national economies are so vast, it’s difficult to get an assessment of conditions on the ground by looking only at the headlining numbers. Sure, the Commerce Department reported a faster acceleration than anticipated, at 2.9% annualized real growth for the quarter, but the makeup of that 2.9% is what matters.
Consumption: Spending by consumers like you, me, and yes, even your roommate makes up ~68% of the overall economy. The degree to which morons like us throw around money essentially makes or breaks the American economy. For the fourth quarter, that figure rose 2.1%, representing solid growth yet still a decline from Q3.
You can blame yourself for that decline. Retail sales data shows a fat dropoff in dollars spent for November and December, which is usually the other way around. Maybe if you bought your parents a Christmas present, we wouldn’t be in this situation.
Regardless, consumption spending dropped significantly in areas like electronics, furniture, and other “delicacies” that you do need but can manage to live without. Spending on the most discretionary items sank like a rock, suggesting consumers don’t have the cash nor the credit lines to keep pace with past times. To be fair, having to spend $8.39 on a carton of eggs will do that to you.
Investment: Fixed investment may not be 68% of the economy, but dollars spent on projects like these drive the spending of future dollars. Homes, factories, plants. Anything big and stationary that an accountant would have to depreciate is included here.
This sh*t sank like a rock over the quarter. Alone, residential fixed investment dropped by nearly a third, losing over 27% in the quarter as builders saw new home construction as an investment as valid as buying the land surrounding Chernobyl.
On the other hand, inventory spend hurt its back last quarter, carrying around 1.5% of the growth figures for the team.
Government: Much like the peasants they rule over, the U.S. government is really, really good at spending money. Especially last quarter.
Federal government spending grew 6.2% over the period, driven by non-defense outlays, while smaller governments at the state and local level grew at 2.3%.
Net Exports: This is basically the quarter’s trade deficit, taking export values and subtracting by total imports. In Q4, the deficit did narrow marginally, but not enough to drive anything significant in this reading. The strength of the dollar at the start of the quarter and volatility throughout the latter half makes this metric a little schizophrenic for the time being.
The point is the economy grew faster than expected but in the wrong places. Growing faster = good, in the wrong places = bad, but that means that more rate hikes = less likely. In this environment, everything leads back to the Fed.
Stripping all else out, domestic demand grew 20bps over the period, a clear sign that the burning desire to spend every dollar you earn as quickly as possible is fizzling out. And we still haven’t nearly felt the full effect of these rate hikes. Trust me, JPow packs a punch.
|
Quo modi dolore omnis aspernatur neque. Voluptatum ut repellat qui rem ab tenetur. Animi eos quae ad possimus aut deserunt deleniti ut.
Et ab impedit esse quisquam aliquam corporis et. Maiores nostrum incidunt voluptatem illum exercitationem expedita officia. Nesciunt rerum dolores delectus molestiae sapiente. Inventore ut qui quia nostrum. Et deleniti eum quis est.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...