U.S. GDP grows in fourth quarter; weekly jobless claims fall

NEW YORK (Reuters) – The U.S. economy kept up a strong pace of growth in the fourth quarter, but momentum appears to have slowed considerably towards year-end, with higher interest rates eroding demand.

Gross domestic product increased at a 2.9% annualized rate last quarter, the Commerce Department said in its advance fourth-quarter GDP growth estimate on Thursday. The economy grew at a 3.2% pace in the third quarter. Economists polled by Reuters had forecast GDP rising at a 2.6% rate.

STORY: nL1N34A2HV

MARKET REACTION:

* STOCKS: The S&P 500 .SPX opened higher by 19.86 points, or 0.49%, at 4,036.08[.N]

* BONDS: Benchmark U.S. Treasury 10-year yields rose over two basis points after the data, although they pared gains afterwards and were last seen at about 3.48% [US/]

* FOREX: The euro was 0.09% lower at $1.09055, but not far from the nine-month high of $1.09295 touched on Monday. [FRX]COMMENTS:

BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN

“The surge in services is slowing. The swing in inventories was the wildcard and that added 1.46 percentage points to GDP growth. The slowing is palpable. Hopefully the Fed feels it too.”

SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE

“The easiest place to start is initial jobless claims which continue to come in at pretty low levels and if you’re the Fed and you’re trying to see some softness in the labor market, it’s definitely not coming through.”

“If you look at the GDP data it does seem like we left 2022 with a little bit more momentum than people had thought and with consumption  we’re also in a pretty good spot. So, if you’re someone who’s worried about a recession, it’s possible that some of that residual strength pushes the recession out a little bit further into 2023.”

“Neither one really showed a picture that the markets are comfortable with right now. The market pretty much thinks that the Fed has maybe one to two more rate hikes left and then it’ll be done and nothing in the data today is going to change that. So at least for now, the market is largely focused on earnings.” 

“We still think that the Fed will probably end up somewhere in that 5% range like they’ve been saying.”

THOMAS HAYES, CHAIRMAN AND MANAGING MEMBER, GREAT HILL CAPITAL LLC, NEW YORK

“It’s a mixed bag…don’t think it changes anything. The Fed funds futures still signaling that the Fed’s going to go 25 basis points in February. The question will be whether they follow the Bank of Canada.”

“I think when you look at these numbers, obviously the GDP is backward looking, it’s still hot, but everyone knows that’s coming down. We’re not going to repeat 2.9% anytime soon.”

“Durable goods data is still strong though, so it shows some strength in the economy, but core PCE prices that came in at 3.9 was lower than expected. That’s very good from the standpoint of giving the Fed cover to go more slowly and eventually pause, if not in February, then in March.

STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST AT MIZUHO SECURITIES USA LLC

“You’re seeing is an economy that is going through a deceleration, despite the fact that the GDP number was fairly healthy for the quarter at 2.9%.

“The net of all the releases, you have an economy that is decelerating, it’s not falling off a cliff. And it’s not falling quickly enough from an above-trend growth rate over the last three quarters to create any slack in the labor market.

“We have a GDP number that is well above trend, and the previous quarter’s number was well above trend. So it’s generating a tight labor market environment and you have durable goods that are being dominated by aircraft, and you can’t just say ‘we’re going to throw off the aircraft from the equation’ because there’s been a big recovery in the travel-related industry and that’s showing through in terms of the confidence of the airlines that book new orders for aircraft.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“(GDP) came in higher than market consensus. The price index is down, we have lower consumption, overall growth was down.”

“It’s a good number but it doesn’t negate the possibility of a mild recession.”

“This number suggests a 50-basis-point rate hike next week and 25 basis points in March, and then possibly an end to the tightening cycle. I think the Fed wants to make sure that the markets don’t get ahead of themselves. I’m looking for 50 basis points next week, then 25 in March and then a pause.”

“(The Fed tightening) hasn’t worked its way through the system, but you’re beginning to see cracks in consumption and inflation. I’m sure the Fed is going to take note of that.”

ANDREW HUNTER, SENIOR U.S. ECONOMIST AT CAPITAL ECONOMICS IN LONDON

“Headline growth beat our 1.9% estimate mainly thanks to another positive contribution from net trade – with the surge in exports in the third quarter being only partly reversed with a 1.3% fall in the fourth, despite drags from softer global demand and the stronger dollar.”

The 1.5% point  boost to growth from inventory building was also stronger than we had anticipated. But the rest of the report was a disappointment, with final sales to private domestic purchasers edging up by only 0.2% annualised, after a muted 1.1% rise in the third quarter.

“Consumption growth slowed slightly to 2.1%, from 2.3%. Moreover, that growth reflects strong gains at the start of the quarter, with the retail sales data suggesting that real consumption fell slightly over the final two months of last year. That suggests higher rates were starting to take a bigger toll, and sets the stage for weaker growth in the first quarter of this year.”

(Compliled by the global Finance & Markets Breaking News team))