Summary
According to the advance estimate released today by the Bureau of Economic Analysis, U.S. Gross Domestic Product (GDP) expanded in the fourth quarter at an annualized rate of 2.3%. That's below the 2.6% consensus and 3.1% growth in the third quarter. Spending by consumers drove the expansion with a 4.2% increase, but private investment was a significant drag, down 5.6%. Consumer spending on goods rose a whopping 6.6%. Within goods, durables jumped 12.1%, showing that some consumers had the confidence to make big-ticket purchases. Nondurables were up 3.8%. The huge services category was up a very solid 3.1%. The report also contains data on inflation, which accelerated in 4Q. The PCE Price Index increased 2.3% in the fourth quarter, compared with an increase of 1.5% in the third quarter. Excluding food and energy, the index increased 2.5%, compared with an increase of 2.2% in the previous quarter. Private domestic investment declined 5.6% in 4Q. Spending on equipment declined 7.8% after rising 10.8% in 3Q%. Intellectual property products increased 2.6%. Residential fixed investment (housing) managed a 5.3% increase in 4Q. While mortgage rates are elevated and affordability stretched, a shortage of homes has sent prospective buyers to the new-construction market. In our view, the report this morning supports the Federal Reserve's decision yesterday to leave its policy target unchanged at 4.25%-4.5%. Jerome Powell commented
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