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Q4'14 US GDP Misses Expectations, but Internals Good Enough for Buck

Q4'14 US GDP Misses Expectations, but Internals Good Enough for Buck

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Headline annualized GDP figure comes in at +2.6% versus +3.0% expected, from +5.0%.

- Net-exports and government spending (via defense spending) the big drags on growth.

- USDOLLAR Index heads back towards yearly highs.

The US economy continued chug along at a modest pace of growth in Q4’14, culminating what was the strongest stretch of growth seen since 2004. The headline growth figure of +2.6% capped off the third year in a row in which growth came in near it’s long-term trend average (depending upon time series, roughly 2.5-3% annualized), and there were aspects of the report that should keep optimism around the US economy (at least relative to the rest of the world) elevated through early-2015.

Notably, personal consumption increased by +4.3% in Q4’14, above both the estimate (+4.0%) and the prior reading (+3.2%). Even though the headline missed the consensus forecast from Bloomberg News, the drags on growth came from a decline in government spending (-2.2%, thanks to a -12.5% drop in national defense spending) and net-exports (exports +2.8%, imports +8.9%). Evidently, the strong US Dollar and weaker oil prices are reducing the energy import bill as well as making foreign goods more appealing to the American consumer.

See the DailyFX Economic Calendar for Friday, January 30, 2015 for an overview of today’s market-moving data releases.

EURUSD 1-minute Chart: January 30, 2015 Intraday

Q4'14 US GDP Misses Expectations, but Internals Good Enough for Buck

The reaction around the report proved to be initially USD-negative; but once the internals of the report were digested, the greenback was able to claw back most of its losses. EURUSD traded at $1.1315 ahead of the report, before rallying as high as $1.1337 in the first few minutes, then to dive right back down to $1.1300. At the time this report was written, EURUSD was quoted at $1.1314.

Read more: Month-end Rebalancing Leaves USD Especially Vulnerable to Q4 GDP

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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