Economist's Insights

Today’s Calendar – 4Q GDP Shows Stronger Consumer, Weaker Business Investment; Trump Speech Looms Large

Mar 1, 2017

The 4Q GDP report was revised this morning to show now change in the overall rate of growth, 1.9% QoQ SAAR.  However, there were considerable changes to the details.  Personal consumption was notably stronger in the quarter, rising 3.0% versus the first estimate of 2.6%.  Importantly, the increase came from a $9.3 billion increase in spending on services and a %4.5 billion increase in spending on goods.  Stronger services spending is typically associated with a more confident consumer.  Business investment was materially weaker, down $5.8 billion from initial estimates.  Inventory accumulation was adjusted lower by $2.5 billion.  And state and local government spending was revised lower by $5.9 billion.  External trade remained a material drag on growth in the quarter subtracting 1.3% from the final GDP tally.  Going into 1Q, stronger personal consumption in 4Q sets a higher bar for consumption growth in 1Q.  Business investment remains weak but some indicators point to a slight acceleration in 1Q.  The baseline expectation for external trade is that it will rebound on mean reversion alone.  However, this morning’s January advance goods trade balance report showed another surprisingly large increase in the trade deficit, from $64.4 billion to $69.2 billion.

At 8:00 a.m. CT, the S&P CoreLogic home price index is expected to show an increase from 5.27% to 5.40% on the year-over-year pace of home prices.  Home prices continue to be resilient given the lack of supply and moderate demand.  By the end of the year, we expect prices to be running closer to a 2-3% rate of annual growth after higher mortgage rates take a toll on demand.  At 9:00 a.m., the Conference Board’s report on consumer sentiment in February is expected to show a slight pullback from 111.8 to 111.0, remaining, however, at a very solid level.  Also at 9:00, the Richmond Fed will release its regional manufacturing activity report.

Comments yesterday from President Trump hinted that tonight’s 8:00 p.m. CT address to a joint session of Congress could shed more light on the specifics of what’s to come on the policy front. In separate settings, the President noted, “I’m going to have a big statement tomorrow night on infrastructure.” He also noted that, “we have a plan [on healthcare] that’s going to be, I think, fantastic.  It will be released fairly soon.  We’ll be talking about it tomorrow night during the speech.” These comments coincided with reports that the Administration was requesting a more than $50B (10%) increase in defense spending that would be offset by cuts in other areas. The culmination of the commentary helped reinvigorate the post-election animal spirits in U.S. markets (more below). If tonight’s comments don’t appease investors, tomorrow’s market moves could easily include a pullback in stocks, the Dollar, and Treasury yields.