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Economic Commentary by Stifel


Economic Commentary Month-in-Review


The delayed release of fourth-quarter GDP showed a stronger-than-expected rise in U.S. economic activity, up 2.6% at the end of last year and 2.9% on an annual basis, surpassing 2017’s 2.2% pace. Coupled with an eleven-month high in job creation at the start of the new year, consumer optimism rebounded, overcoming earlier pressures from a government shutdown and market volatility. Meanwhile, a slew of disappointing data overseas, particularly from Europe and China, reinforced concerns of a global slowdown with ongoing trade negotiations and Brexit worries compounding market uncertainty while at the same time offering further justification to the Fed’s new “patient” approach to monetary policy adjustments.

National Growth and Outlook

  • NFIB Small Business Optimism (Feb 12) – The NFIB Small Business Optimism Index declined from 104.4 to a reading of 101.2 in January, more than the drop to 103.0 expected, according to Bloomberg, and the lowest reading since November 2016.

  • Leading Index (Feb 21) – The Leading Index unexpectedly declined 0.1% in January, a three-month low. According to Bloomberg, the index was expected to rise 0.1% in January.

  • Chicago Fed National Activity Index (Feb 25) – The Chicago Fed National Activity Index fell from 0.05 to a reading of -0.43 in January, an eight-month low. According to Bloomberg, the index was expected to decline to a reading of 0.10 at the start of the year. The Chicago Fed National Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In January, 35 of the 85 monthly individual indicators made positive contributions, while 50 made negative

  • GDP (Feb 28) – Q4 GDP was (finally?!) reported at 2.6%, more than the 2.2% gain forecasted, according to
    Bloomberg, but still a three-quarter low. Year-over-year, the U.S. economy continued to expand, accelerating to a 3.1% pace in Q4. Annual growth rose from 2.2% in 2017 to 2.9% in 2018, matching the pace in 2015. In the details, personal consumption rose 2.8% in Q4, following a 3.5% gain in the third quarter. Goods consumption increased 3.9%, thanks to a 5.9% rise in durable goods consumption, a two-quarter high. Nondurable sales rose 2.8% in the fourth quarter, following a 4.6% increase in Q3. Services consumption rose 2.4% in Q4, a three-quarter low. Gross private investment increased 4.6% in Q4, following a 15.2% rise the quarter prior, thanks to a $97.1 billion rise in inventories in Q4, following an $89.8 billion increase the quarter prior. Fixed investment gained 3.9% in the fourthquarter, a two-quarter high. Nonresidential investment, including office buildings and factories, increased 6.2%, a two-quarter high, thanks in part to a 13.1% increase in intellectual property investment, a three-quarter high, and a 6.7% gain in equipment investment, also a three-quarter high. Structures investment, however, fell 4.2% in Q4, the second consecutive quarter of decline. Additionally, residential investment declined outright, falling 3.5% in the fourth quarter, marking a full year of contraction. On the trade side, exports rose 1.6%, following a 4.9% drop the quarter prior, and imports gained 2.7% in Q4, following a 10.5% gain in Q3. Finally, government consumption rose 0.4% in the fourth-quarter, the lowest level since Q3 2017. Federal spending rose 1.6% in Q4, led by a 6.9% gain in national defense spending. State and local spending, however, declined 0.3% in Q4, a five-quarter low.


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