Weekly Data Analysis: A Strong Q4 GDP Print

US data released in the past week confirmed our positive view on the trajectory of the US economy, with real GDP growth remaining robust in the fourth quarter of last year, strong personal spending in December despite weak income growth, and consumer confidence remaining fairly strong in January. While we saw a marked slowdown in durable goods orders in December, we believe that this data point is something of an aberration and expect stronger growth in durables purchases going forward. The trend in initial and continuing jobless claims remains consistent with our view for additional labour market tightening, although we acknowledge this may be somewhat erratic at times due to fluctuations in labour force participation.

Next week will see the ISM manufacturing and non-manufacturing indices for January (February 3, 5), as well as factory orders and the trade balance for December (February 4, 6). Nonfarm payrolls and the unemployment rate for January will also come out at the end of next week (February 7), and we expect a much stronger payrolls figure than the 74,000 reported in December. Indeed, we believe there is a considerable possibility that the December figure will be revised up substantially.

Real GDP growth came in at a seasonally-adjusted, annualised rate (SAAR) of 3.2% in Q413, and while this represents a slowdown from 4.1% growth in Q3, we believe it reflects a continued strengthening trend in the US economy throughout last year. Real personal consumption expenditure growth steadily increased from Q1 onwards, as did real GDP growth excluding fluctuations in inventories. We broadly expect these trends to continue into 2014 and forecast 2.8% real GDP growth this year, up from what appears to have been 1.9% growth in 2013 as of the advance estimate of Q4 growth ( see 'Strong Q4 Points To 2014 Pickup', January 30).

Strong Real GDP Growth In Q413 Bodes Well For 2014
US - Real GDP & Personal Consumption Expenditure, SAAR % chg

Weekly Data Analysis: A Strong Q4 GDP Print

US data released in the past week confirmed our positive view on the trajectory of the US economy, with real GDP growth remaining robust in the fourth quarter of last year, strong personal spending in December despite weak income growth, and consumer confidence remaining fairly strong in January. While we saw a marked slowdown in durable goods orders in December, we believe that this data point is something of an aberration and expect stronger growth in durables purchases going forward. The trend in initial and continuing jobless claims remains consistent with our view for additional labour market tightening, although we acknowledge this may be somewhat erratic at times due to fluctuations in labour force participation.

Next week will see the ISM manufacturing and non-manufacturing indices for January (February 3, 5), as well as factory orders and the trade balance for December (February 4, 6). Nonfarm payrolls and the unemployment rate for January will also come out at the end of next week (February 7), and we expect a much stronger payrolls figure than the 74,000 reported in December. Indeed, we believe there is a considerable possibility that the December figure will be revised up substantially.

Real GDP growth came in at a seasonally-adjusted, annualised rate (SAAR) of 3.2% in Q413, and while this represents a slowdown from 4.1% growth in Q3, we believe it reflects a continued strengthening trend in the US economy throughout last year. Real personal consumption expenditure growth steadily increased from Q1 onwards, as did real GDP growth excluding fluctuations in inventories. We broadly expect these trends to continue into 2014 and forecast 2.8% real GDP growth this year, up from what appears to have been 1.9% growth in 2013 as of the advance estimate of Q4 growth ( see 'Strong Q4 Points To 2014 Pickup', January 30).

Strong Real GDP Growth In Q413 Bodes Well For 2014
US - Real GDP & Personal Consumption Expenditure, SAAR % chg

Personal spending growth in the final month of 2013 surged to 3.6% y-o-y, the strongest level since December 2012, and broadly in line with our view that a tightening labour market, growing household net worth, and greater consumer confidence would support spending in 2014. However, personal income contracted by 0.8% y-o-y. While this was mostly attributable to base effects - income grew by 7.9% y-o-y in December 2012 - we highlight that a substantial degree of labour market slack is most likely keeping wage growth low. If this trend of weak income growth continues, we could see some headwinds to our forecast for real personal consumption expenditure growth to accelerate to 2.5% in 2014 from what appears to have been 2.0% last year.

Spending Surging, But Incomes Less Impressive
US - Personal Spending & Income Growth, % chg y-o-y

January consumer confidence dipped slightly to 81.2 from 82.5 according to the University of Michigan Index of Consumer Sentiment. However, the index is still relatively high for the post 2008-2009 financial crisis period, and we believe it is at levels consistent with greater consumer spending this year.

Consumers Still Reasonably Optimistic
US - University Of Michigan Index Of Consumer Sentiment

However, December durable goods orders grew by just 0.7% y-o-y after 9.9% y-o-y growth in November. If we were to see this slowdown continue in the months ahead, we would likely revisit some of our assumptions about the pace of consumer spending and business investment in 2014.

Steep Slowdown In Durables Orders
US - Durable Goods Purchases, % chg y-o-y

Initial jobless claims remained broadly within trend, increasing slightly from 326,000 to 348,000, above survey estimates of 330,000. Continuing claims fell slightly to 2,991,000 from 3,056,000 the week prior. We believe these levels are broadly consistent with continued labour market tightening in the months ahead, provided we do not see a substantial drop in the rate of new hires.

Jobless Claims Broadly Within Trend
US - Initial & Continuing Jobless Claims, '000
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