Signs of 2014 growth soothe investor wounds

Overall the GDP growth report matches expectations and offers no consumer shocker, and as such signs of positive growth for 2014 are soothing investors’ wounds incurred in the recent week, sending bond yields marginally higher in response.

Growth in the final quarter came in at a healthy 3.2% annualized pace aided by strengthening consumer spending. Consumption formed 2.3% of that pace, which is the strongest level in three years and higher than the 1.4% contribution in the prior quarter. Investment spending in the final three months of the year was relatively weak by comparison with some of the drag felt across inventory building, which in the event added 0.42% to the mix down from 1.67% in the three months ending September. Overall gross domestic private investment added 0.56% to headline growth rather than 2.56% seen in the third quarter. Within that reading part of the drag came from residential construction, which weighed on GDP to the tune of 0.32%. In the prior quarter residential construction added almost exactly the same amount to growth.

Net trade added to GDP by 1.33% and stronger than the 0.13% addition last time around, as exports grew while the offset from imports was less. The contribution from government spending weighed on GDP by 0.93% last quarter with reduced federal spending costing the economy 0.98% while state and local spending added 0.06%. Finally, on the inflation front the closely watched GDP deflator fell back to 1.3% from a 2.0% pace witnessed in the third quarter. For now prices are relatively stable with inflation running at a low level, but note that the FOMC continued at its January meeting to couch its taper plans on developments within both labor market and price behavior.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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