It is another crazy day in the markets as the Dow is up over 455 points (1.5%) because of positive data. Specifically the 4.1% Q4 GDP growth pace slightly exceeded our estimate, while slightly undershooting market estimates, with big upside surprises from gains of 3.0% for investment in nonresidential structures and 7.5% for investment in intellectual property, and a drop for government purchases of “only” -1.2%. Mostly offsetting downside surprises were seen with a -$102.1 bln subtraction from net exports that was -$34 bln below our estimate, and a $48.3 bln contribution for inventories that was -$44 bln short of our assumption. This is the second consecutive quarter with a much bigger net export subtraction than assumed.
We otherwise saw the largely expected 2.5% growth clip for consumption spending as lockdowns hit spending into year-end, and expected big growth clips for the investment categories of 33.5% for residential investment and 24.9% for equipment spending. The trade components were both quite strong, with gains of 22.0% for exports and 29.5% for imports.
The GDP price index posted a 2.0% Q4 climb after the 3.5% Q3 clip, while the core rate slowed to 1.4% in Q4 from 3.4% in Q3.
The report will raise prospects on net, given stronger sales data than assumed on average, with a weaker inventory path. Final sales grew at a 3.0% Q4 clip, versus our much lower 1.8% assumption.
Advance Trade
The advance indicators report revealed a December narrowing in the goods trade deficit to $82.5 bln from an all-time high of $85.5 bln in November, leaving a gap that was 1.3 bln tighter than assumed. The trade disappointment was accompanied by undershoots for both wholesale and retail inventories that left a -6.2 bln undershoot of our estimate.
The data support the weaker inventory path revealed in the Q4 GDP report released at the some time, though the better trade path would have been a “head fake” for the weak reported Q4 net export figures.
For the trade components, December goods imports rose 1.4% to $215.9 bln, versus the 3.1% jump to $213.0 bln previously. Goods exports jumped 4.6% to $133.4 bln, after edging up 1.0% to $127.5 bln.
Advance retail inventories climbed 1.0% to $624.1 bln, following a 0.8% rise to $617.7 bln (was $616.9 bln). Advance wholesale inventories inched up 0.1% to $650.4 bln, after a flat November reading at $649.6 bln (was $649.8 bln).
Initial and Continuing Claims
The -67k initial claims drop to a still-elevated 847k in the week of the MLK holiday extended the -13k drop to 914k (was 900k) in the BLS survey week. Claims on an NSA basis fell -101k to 874k, following a -138k plunge to 975k (was 961k). Continuing claims fell -203k to 4,771k, after a -201k drop to 4,974k (was 5,054k). The full mix of data were tighter than expected, with unusually big revisions over the last two weeks.
The insured jobless rate fell to a new low of 3.4% from 3.5 (was 3.6%) last week and 3.6% in the week before that. We saw a 3.5% prior-low in the previous two weeks.
Initial claims are averaging 886k in January, after averages of 828k in December, 749k in November and 786k in October.
The 914k January BLS survey week figure followed prior survey week readings of 892k in December, 748k in November and 797k in October.
Continuing claims fell -551k between the December and January BLS survey weeks, following prior drops of -767k in December, -1,734k in November, -4,924k in October, -1,745k in September, -2,459k in August, -2,280k in July, and -1,610k in June.
We attribute the big holiday season gyrations to both the usual seasonal claims rise to a peak in early January combined with the difficulties of seasonal adjustment in this odd holiday season, and a surge in applications after passage of the stimulus package.
We will leave our January nonfarm payroll estimate at 100k.
