Wednesday, January 30, 2013

Q4 GDP and Jan. ADP ...

Q4 GDP Shrank 0.1%

Well, the initial report on Q4 GDP certainly was not what we or the market expected.  In fact, we thought that number might even be better than the 1.0% consensus.  That certainly was not the case as the annualized Q4 '12 GDP growth turned out to be -0.1%, the first decline since 2009.

The main miss with respect to our estimate was that we over estimated the government spending portion.  In fact, at the federal level, government spending declined at a 15% annualized rate, led by a 22.2% decline in defense spending.  Declines in inventories and net exports also contributed to the disappointing Q4 GDP. 

On the positive side, PCE grew 2.2%, which in our model was the driver behind our 1.2% real GDP estimate.  And as we mentioned on Monday, growth in wages and disposable income was more than expected.  In addition, durable goods went up nearly 14%.

Given that the US economy is a consumer driven one, the latest GDP report may not be that bad.  However, decline in inventories, along with huge declines in both exports and imports, may indicate that economic growth will be limited going forward.

ADP (January)

The January ADP figure came in above estimates; 192K versus 172K.  However, the December number was revised down by 30K to 185K.  Most of the 192K increase was attributable to higher employment in small businesses and mainly service providers.

As a reminder, January ISM and NFP will be released on Friday.  Reaction to the Q4 GDP number does not appear to be that bad, with the S&P 500 futures down around 0.2%.  Given the disappointing growth, gold is up 1% as the need for continuation of QE is apparent.  Lastly, NFLX is up a bit more than $3/sh as many are applauding its success in raising more debt at a lower rate to pay off some of its other debt and also pay for content. 

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