Some Common Cents for January 27th, 2017

This morning, the Bureau of Economic Analysis (BEA) released its first stab at 4Q 2016 Gross Domestic Product (GDP). Since the BEA estimated the economy grew at a 3.5% annual rate for 3Q 2016, no one was expecting a huge number (or shouldn’t have). However, the 1.9% figure the BEA gave us was less than the so-called ‘consensus’ estimate of 2.2%, but it wasn’t surprising.

In fact, it was the somewhat gaudy 3Q estimate I found a little, well, head-scratching. Sure, the headline looked great, but how in the world did our trade deficit improve so much in one quarter as to add 0.85% to the 3.5% estimate? Sure, the US dollar fell a smidgeon, a smidgeon, during 3Q, but enough to engender a 14.4% annualized surge in exports (goods) and essentially no change in imports (goods)? That seemed a bit much to me, even if the various governmental agencies could support it in some form or fashion.

Historically, there tends to be some volatility with the trade data in the GDP report, if volatility is the right word. As a result, a large surge in either exports or imports in one quarter ordinarily results in a swing the opposite direction the next. Such was the case this morning. To that end, exports (goods) reportedly fell at a 6.9% clip and imports (goods) surged 10.9%. As a result, the worsening in our trade deficit during 4Q shaved a full 1.70% off the GDP equation.

In so many ways and words, the 3Q number (headline) probably overstated domestic economic growth, just as the 4Q number understated it. For the year as a whole, the BEA currently estimates GDP grew 1.6% when adjusted for inflation. This means the US economy has not grow at a 3.0% or greater clip for 11 years, as 2005 was the last turn of the calendar when we had such ‘august’ economic activity. …Read More…

The opinions expressed within this report are those of John Norris as of the initial publication of this blog. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders, and employees.