From Ellen Zentner at Mitsubishi Financial, one key nugget from the retail spending report that on the top line was kind of weak:Lastly, make note of the strong upward revision to the category of eating out (AKA food services) in November to +0.5% from the originally reported +0.1% and another increase of +0.2% in December. This category was late to turn upward once the U.S. economy moved into recovery, but has been putting forth some good numbers of late (up +5.3% year-over-year in December). Eating out is a bellwether of consumer sentiment and shows that more and more households are comfortable spending on non-necessities.
Zentner, meanwhile, puts together the maths on Q4 GDP:
Consumer spending, representing just over 70% of the U.S. economy, will contribute +2.4 percentage points to growth in the final quarter of the year. That will be its largest contribution to quarterly growth since the final quarter of 2006. Net exports will be the second largest contributor to Q4 growth, coming in at +2.0 percentage points, as exports put in a double-digit gain of 10.2% while imports declined by -6.8%.
Finally, we are expecting a +1.0 percentage point contribution from nonresidential fixed investment, made up of a slight decline of -0.4% in structures that is greatly outweighed by a jump of 16.2% in equipment and software. In fact, the only sector expected to have subtracted from economic growth in Q4 is inventories. Despite strong growth in inventories in Q4, much of it was led by higher prices and we expect that the real inventory adjustment to GDP in Q4 will be on the order of a -$70 billion drag or so. That being said, sales have been outpacing inventories, which bodes well for inventory building in early 2011. Especially for retailers whose inventories were depleted following a stronger-than-expected holiday shopping season.
All in, Q4 GDP was probably 3.8%.