US Q4 2019 GDP to Rise Slightly Higher

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The commerce department will be releasing the second estimate on the fourth-quarter GDP from 2019. The median expectations point to a modest increase from the preliminary estimates.

In the first estimate, the commerce department said that that the US economy advanced at a pace of 2.1% in the three months ending December 2019. This was the same pace of increase as seen in the previous three month period. For the second estimate, economists are forecasting that the US GDP will rise by 2.2%.

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This marks a mere 0.1 percentage point increase on the headline GDP figures.

The pace of increase in the fourth quarter (and the third quarter) is slower compared to the previous periods.

It comes amid a strong slowdown in the global economy. As trade disputes hit the headlines, both Washington and Beijing retaliated with tariffs. Thus, global confidence in trade declined.

Besides China, a number of other countries that had big trade relations with Washington also came under the scanner.

Accounting for the fundamentals and the fact that the US economy is in the longest expansionary stretch, it was obvious for a slowdown to occur. But thankfully, the pace of declines are modest, soothing concerns of a recession.

Investors and consumers alike were greatly concerned about the possible recession after a number of recession indicators flashed red.

But a timely trade deal helped not just the United States but also the global economic sentiment.

The preliminary GDP figures were just that; preliminary. Since the first estimates came out on January 30th, there has been a number of other second-tier data.

Construction Spending and Trade Balance Weighs on GDP Revisions

After the initial estimates came out, there were a number of other economic reports released for the period ending December 2019.

Among these, included construction spending. Construction spending was disappointing in December. Activity fell by 0.2% during the period. But this is offset by a revised 0.7% increase in November 2019.

But on the other hand, factory orders activity came out stronger. US factory orders advanced 1.8% on the month, reversing a 1.2% decline previously.

In December, the trade balance figures saw the US deficit widening amid wholesale sales falling 0.2% during the time. This was after a decline of 0.1% in November.

Among a number of other indicators, it was only the housing starts that saw a modest upside revision.

Therefore, combining all the above, it is quite likely that the US GDP will remain stable, with the scope for a modest increase to 2.2%.

But this comes with strong downside risk. Given the weakness in some of the sectors, there is a possibility for the GDP to drop to 2.0%. But currently, the markets look to be pricing in this deviation.

Thus, a reading between 2.0% – 2.2% will likely have a minimal impact on the markets.

Focus Will Shift to the First Quarter GDP for 2020

Investors will of course, immediately shift focus to the current quarter. With the possible economic impact of the coronavirus, there is scope for the first-quarter GDP to slow further.

But this is yet to be assessed currently. For now, the immediate impact is on US exports. Exports from the United States slowed considerably. Travel is also taking a big hit, which could hit productivity. Although the data is still preliminary, forward-looking indicators point to a below 2% growth rate.

But this could pick up pace over the next month as investors wait and assess for more economic data.

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