Q4 growth data reveal domestic demand remains robust

We are not disappointed by last quarter’s GDP growth number as it underlined solid domestic demand, accompanied by strong durable goods orders. In the details, the BEA report shows that GDP was supported by a 4.3% rise in real domestic final sales, one of the strongest quarter of the expansion to date.

In addition, the fact that inventories were a significant drag in the fourth quarter also suggests a more positive contribution to growth during the first quarter of this year. In line with solid investment spending (equipment +11%; residential investment +12%), import strength was notably strong in capital goods (+13% YoY) as well as industrial supplies (+13% YoY). Overall, data suggest solid growth, signaling a good start into 2018.

As to inflation, the modest rise in core PCE inflation last month is in line with our scenario, which foresees a continuation of the gradual rise in the underlying inflation trend. Though the Federal Reserve is likely to leave policy rates unchanged during this week’s FOMC meeting, we continue to expect at least four rate hikes this year.

Gero Jung – Chief Economist – Mirabaud AM