Data released on Thursday, showed the US economy grew at a 6.9% annualized rate in the fourth quarter, surpassing gexpectetions. According to analysts at Wells Fargo, the details behind the better-than-expected headline point to a slowing in spending and a back-up in inventories. Without the boost from inventories, GDP would have been just 2.0% in Q4, they explained.
Key Quotes:
“It is tempting to celebrate a better-than-expected outturn with 6.9% GDP growth in the fourth quarter, but due to a confluence of factors we will not likely see that sort of growth again for some time. While to some extent the year-end surge was a function of steady consumer and business spending, both petered out at the end of the year as Omicron cases climbed and hospitalizations followed.”
“In the absence of that stimulus, consumer spending is poised to slow. We do not have a quarterly growth rate north of 3.0% for consumer spending throughout the rest of this year or next year. To the extent that there is good news in that, this will allow supply chains a chance to catch up”.
“The inventory build we saw in Q4 was an unhealthy one, and an argument could be made that it was unintentional. But a slower, sustained build in inventories over the next couple of years will not only underpin growth it will allow for a smoother, if somewhat slower expansion in the business sector.”
“The defining challenge for the economy in the next year or two will be how well we can sustain growth not just in the absence of fiscal policy, but in the face of tightening monetary policy.”