Thursday, February 28, 2019
The long-awaited first read on Q4 GDP has just come out, with results better than expected: +2.6%, whereas analysts had been pivoting right around that 2.0% figure ahead of the release. The historically strong Q3 results were revised upward in its third and final headline: 3.5%.
Even though it’s too early to take the long view of 2018 GDP as a whole, this 2.6% number joins the 2.2%, 4.2% and now 3.5% from the previous quarter to put preliminary GDP at 3.125%, or above 3% for the first time since prior to the Great Recession a decade ago.
That this initial Q4 read is well ahead of analysts’ estimates on the first read is interesting when we see how the numbers break down: the Consumer was actually slightly below estimates of 3% to 2.8%, though the Price Index overall wound up 10 basis points hotter. Core Personal Consumption Expenditures (PCE) — stripping out various near-term volatility, thus creating what we consider a “core” number — reached +1.7%.
The positive surprise in the quarter came not so much on the Consumer side, however, as it did from Enterprises: a 13% upswing in Intellectual Property (IP) investment, along with +6.7% in Equipment purchases, were perhaps the most notable figures once we look under the hood of this first read. What these numbers suggest is that there was a positive impact from the big corporate tax cut enacted at the start of 2018, which (eventually) allowed corporations to invest in their infrastructure. And it is these tax cuts widely credited with the first year of 3% GDP (assumed, based on this initial read) in more than 10 years.
Initial Jobless Claims rose last week, from a slightly upwardly revised 217K two weeks ago to 225K in this latest report. This bumps up at the top end of our 200-225K range we’d been enjoying for the past year or more, which only had been marred by a couple weeks earlier this year affected by the U.S. government shutdown.
We continue to see results of a very strong labor market with these figures — when we had been more toward the other end of this range we were talking about half-century lows — and we look forward to a new U.S. non-farm payroll report from the Bureau of Labor Statistics (BLS) a week from tomorrow.
Continuing Claims rose from 1.726 the previous week (slightly revised) to 1.805 million last week. This broaches a somewhat higher level than we have seen in a long time, but consider back when we first saw long-term jobless claims move to sub-200K a few years ago: analysts were ecstatic. So 1.8 million in longer-term claims is certainly far from the end of the world. That said, we will track this trajectory over time, which has creeped up slowly over the past 6 months or so.
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