Economists React to Fourth-Quarter U.S. Growth: ‘Consumer Spending and Housing Remain Solid’ – Real Time Economics

“Big drags” on U.S. growth in the fourth quarter included the “ongoing downturn in energy development and production,” said Gus Faucher of PNC.

The U.S. economy grew a weak 0.7% in the final quarter of 2015, a sign of flagging momentum amid global weakness and financial market turmoil. Here’s what economists had to say:

“Growth slowed in the fourth quarter, with big drags from inventories, trade, and the ongoing downturn in energy development and production. But consumer spending and housing remain solid, thanks to good fundamentals including steady job gains, rising wages and low interest rates, and will continue to lead overall economic growth.”—Gus Faucher, PNC

“A weak quarter, with activity again significantly suppressed by a reduced rate of inventory accumulation….[The personal-consumption expenditure price index] year over year gains remained well below the Fed’s 2% ‘target’ in the latest quarter. Reported inflation continues to be suppressed by lower costs for energy and other commodities and generally reduced import prices owing to dollar strength. So, while Fed forecasts remain for higher inflation, the trajectory of these forecasts keeps getting pushed forward by reality.” —Joshua Shapiro, MFR

“Fourth-quarter GDP data suggest that the dynamics in this admittedly large corner of the economy just aren’t big enough to deliver the lift that underpins the [Federal Open Market Committee] outlook and, by extension, its December trajectory for policy rates. To weakness in energy, exports, and too much inventory we can now add to the softer side of GDP data the auto sector—motor vehicle output took 58 basis points away from overall growth. And the economy hasn’t even reached the point, time-wise, where recent equity market weakness would negatively impact spending—of the consumer or capital kind.” —Steve Blitz, ITG Investment Research

“The slowdown from [the third quarter to the fourth quarter] primarily reflected a deceleration in [the PCE price index] and downturns in nonresidential fixed investment, in exports, and in state and local government spending….The sluggish headline GDP reading masks the fact that consumer spending held up better than expected in the fourth quarter.—Dana Saporta, Credit Suisse

“Just about every cylinder in the engine stalled during the final quarter of 2015… One of the largest drags on the economy was consumer spending which accounts for about 70% of gross domestic product. They had every reason to spend including healthy employment gains, cheaper gasoline and lower import prices. Instead, consumers remained cautious about spending, boosting the savings rate instead. The unseasonably warm weather contributed to the softness, especially for apparel and utilities… The Federal Reserve should be worried by the report. The monetary authorities would want to make sure that economic growth is on a healthy upward trend before raising the interest rate again in 2016.” –Sung Won Sohn, Smith School, California State University

“The key theme in these numbers is the stark contrast between the fortunes of the household and business sectors. Households continue to perform well… in stark contrast, business spending was dismal… Consumer spending should reaccelerate in the current quarter as the weather normalizes, business investment, while not robust, is unlikely to be as weak as it was in 4Q, and the drag from inventories should continue to wane.” –Stephen Stanley, Amherst Pierpont

“The modest upside surprise relative to our forecast was driven primarily by consumption and residential investment, which we take as a positive signal for the strength of US households and the broader business cycle… Within consumption, robust growth in durable goods purchases bolsters our confidence that the US consumer sector remains solid. Furthermore, residential investment growth surprised to the upside at 8.1%, well above our forecast. Together, better-than-expected growth in big-ticket purchases should allay concerns of a retrenchment in US consumer spending. We expect growth will bounce back to 2.5% in the first quarter, driven by better domestic demand and less of a drag from inventory growth and net trade.” –Jesse Hurwitz, Barclays

“Today’s GDP reading of 0.7% gain was no big surprise as low energy prices, a stronger U.S. dollar and slower global growth took a toll on economic activity. Consumers during the all-important holiday season cut their spending from what it was even mid-2015, evident in the sales results retailers posted. While this is speed bump and a lower ‘stepping-off point’ as we head into the new year, consumer sentiment remains intact. When released, structures, trade and inventories could show further weaker economic activity from the 4th quarter. This could have a lingering effect for the first quarter of 2016.” –Jack Kleinhenz, National Retail Federation


Related reading:

U.S. GDP Advances 0.7% in Fourth Quarter

Fourth-Quarter U.S. Growth – The Numbers

Turmoil in the Oil Patch Is Hitting U.S. GDP Growth

Why the Manufacturing Contraction Might Not Signal a Recession



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29 January 2016 | 2:48 pm – Source:


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