US: Consumers drive the economy

5 min

Q4 GDP growth was markedly stronger than the headline +2.6% q/q annualized rate indicated. Busi-ness investment gained a solid +6.8%, and residential investment made a sharp +11.6% increase after two consecutive negative quarters. The only real downside to the report was that a surge in imports caused the trade deficit to swell, knocking off a full -1.1pp of the headline growth rate. Most importantly, personal consumption (PCE) grew a very strong +3.8% in the quarter and is now running at +2.8% y/y. One worry though is that consumers are spending most of their income to fuel con-sump¬tion, driving the savings rate down to 2.4%, the fifth lowest monthly reading since 1959. However, income is starting to trend up, growing +2.1% y/y vs. only +1% just five months ago. 

In addition, consumers have the willingness to spend as January consumer confidence rose +2.3 points to 125.4, still near November’s 17-year high. Durable goods orders gained an outsized +2.9% m/m, driven by defen¬se aircraft. After stripping out volatile components, orders shrank -0.3% but the y/y rate is still a hot +8.4%. Inflation remained tame in December as the (PCE) core rate rose a tick to a still slow +1.5% y/y.