US Q4 GDP: Positive trends  - Wells Fargo

According to analysts from Wells Fargo, a positive detail of the 4Q GDP report is the trend in domestic final sales. “For us, 2017 looks better than 2016”, they said. 

Key Quotes: 

“Real GDP grew at a 1.9 percent annualized rate in Q4 and 1.6 percent for all of 2016. Real final sales to domestic purchasers (top graph) continue to move ahead based upon the strength of consumer spending and government. In the fourth quarter, consumer spending grew at a 2.5 percent clip with better goods purchases but a bit of weakness in services.”

“Business equipment and intellectual capital spending improved nicely, with growth rates of 3.1 percent and 6.4 percent, respectively. Industrial equipment was a strong contributor. Structures were a drag on growth. For all of 2016, both equipment and structures contracted but we expect both components to add to growth in 2017.”

“Voters and the Trump administration want faster growth. Our outlook is for growth in 2017 to be stronger than 2016, but sustaining a much faster pace of growth will require overcoming some supply-side challenges.”

“The Congressional Budget Office recently released its estimates for potential real GDP growth of just below 2 percent. Meanwhile, most private estimates, including ours, project real growth above 2 percent in the nearterm. So, is inflation on the upward slope over the next two years—and where inflation goes, will the fed funds rate follow? This will be a touchy issue for the next two years as a stronger dollar and higher interest rates may act as a partial offset to the fiscal stimulus plans of the current administration.”