Despite GDP miss, underlying US growth still around 3% — CIBC

US GDP numbers today showed an expansion of 2.3% q/q annualized in Q4, below
consensus expectations of 2.6% and last quarter’s 3.1% increase. That puts annual growth at 2.5%, which is solid and matches the Fed’s expectations but it’s not blockbuster.

The real takeaway is the consumer with spending up 4.2% q/q annualized, beating expectations (never underestimate the US consumer).

“American consumer just can’t get enough of durable goods spending, which rose by 12.1% in the quarter and is miles
above its pre-pandemic trend,” write CIBC after the report.

They caution that the rest of the economy isn’t nearly as strong with business investment soft and the government doing far too much heavy lifting.

Still, the numbers are better than expected because inventories subtracted 0.9 pp in part due to weather events and strikes. Those skews will likely continue into Q1 as businesses stockpile ahead of potential tariffs.

“Stripping out inventories and
net trade, final sales to domestic purchasers growth came in at a still very strong pace 3.1%, about the average over
the last two years,” CIBC writes.

Looking ahead, they see downside risks around slower population and trade tensions but expect it will be overcome.

“The floor for consumption growth is still likely high, driven by the surging asset income and spend-happy
and tech-savvy Millennials,” they write, noting that tariffs could eventually cut 1% from growth. ” The wild ride on tariffs
could be continue for sometime.”

Overall, here is how they summarize it:

The bottom line here is that GDP could slow a bit more under the Trump administration but likely not enough to worry
the Fed. Powell will be more concerned about the price level increases and how that feeds into price and wage
expectations in an economy that is still strong and given inflation is not fully there. Today’s data reinforces the Fed’s
wait and see attitude. The underlying pace of growth is still about 3% and the consumer is showing no signs of letting
up, a possible indication that they will be able to weather some modest price rises

This article was written by Adam Button at www.forexlive.com.