Talking Points:
- Q4’16 US GDP comes in at +1.9%, the slowest pace since 2011.
- US GDP hasn’t topped +3% since 2005, and hasn’t topped +4% since 2000.
- US Dollar trades lower as US economic momentum appears to have cooled.
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The US economy grew at a slower pace than anticipated last quarter, capping off the year with its worst growth reading since 2011. At +1.9%, the headline reading missed both consensus expectations (Bloomberg News’ aggregate forecast of economists called for +2.2%) as well as several tracking gauges put out by various Federal Reserve branches (Atlanta Fed was looking for +2.9%, NY Fed was looking for +2.1%).
Consumers remained the growth engine of the US economy, accounting for 69% of headline GDP in 2016. Yet aside from this one bright spot, there is a facet of the report that will likely come into focus: the trade balance. After President Trump lambasted Mexico over the US’ trade deficit with her third-largest trading partner, today’s data may fuel this sentiment: net-exports were -1.1% during Q4’16. In a rather simplified and elementary way of looking at it, if the US didn’t run a trade deficit last quarter (net-exp = 0%), then US growth would have topped +3%.
This will likely be the focus for markets over the session, as one of President Trump’s promises was to help the US economy achieve the elusive +4% growth rate again. Yet there is a more meaningful hurdle: the US economy hasn’t grown by +3% in any year since 2005; and +4% growth was last seen in 2000. Certainly, with the US economy underperforming both the market’s and the Fed’s own expectations, the prospect of an accelerated rate hike schedule seems dimmer this morning.
Here’s the data pushing the US Dollar lower this morning:
- USD Gross Domestic Product (4Q A): +1.9% versus +2.2% expected, from +3.5% (Annualized)
- USD Personal Consumption (4Q A): +2.5% as expected, from +3.0% (Annualized)
- USD Gross Domestic Product Price Index (4Q A): +2.1% as expected, from +1.4% (Annualized)
- USD Core Personal Consumption Expenditure (4Q A): +1.3% versus +1.4% expected, from +1.7% (q/q)
- USD Durable Goods Orders (DEC P): -0.4% versus +2.6% expected, from -4.8% (m/m)
- USD Durables Ex Transportation (DEC P): +0.5% as expected, from +1.0% (m/m)
Chart 1: DXY Index 1-minute Timeframe (January 27, 2017 Intraday)
Following the data, the US Dollar Index (DXY) fell from 100.63 to 100.38 at the time this report was written. The US Dollar has decoupled from its recent driver (the Trump reflation trade pushing US yields higher) and currently finds itself in a tenuous situation, potentially getting ready for a reversal back into the 2015-2016 consolidation – which would be rather foreboding for the US Dollar over a medium-term time horizon.
Read more: US Yields are Rising Again - So Why Isn’t the US Dollar?
--- Written by Christopher Vecchio, Senior Currency Strategist
Follow him on Twitter at @CVecchioFX
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