Last Quarter's GDP Report Was Even Stronger Than We realised

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Famously, Q4 GDP came in at -0.1%, marking the first quarterly contraction since the financial crisis. The culprit was a sharp slowdown in government spending, predominantly military.Anyway, we pointed out at the time that the report wasn’t that bad, since private sector activity was strong. And since then, some shops have cranked up their estimates of what Q4 will be revised to. In the end, it will probably be revised to solidly positive.

The really good news is that the private sector looks stronger and stronger.

In a note today, Deutsche Bank explains that thanks to today’s retail sales numbers (which had nice revisions to earlier months) the end demand part of the Q4 GDP picture is looking nice.

With a more complete picture of Q4 GDP following recent reports on retail sales, construction spending, international trade and inventories, the overall growth figure for last quarter remains unchanged at -0.1%. However, the underlying growth profile is somewhat improved, given that demand appears stronger than initially reported. Indeed, final sales (GDP less inventories) now look to be significantly stronger (1.9%) relative to what was initially reported (1.1%). Previously we highlighted that the acceleration in the underlying growth trend was more meaningful than the contraction in overall GDP, and this notion is even more compelling in light of revisions. The resilience of the economy is evident in two key series: retail sales and jobless claims.

Of course, the jury remains “out” on whether the expiration of the payroll tax holiday and higher gas prices will sap the consumer. For now, things look good.

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