We got a big upside GDP surprise of 3.3% in Q4 relative to the estimate of up 2%. But it’s important to talk about what the key contributors were, writes Peter Boockvar, editor of The Boock Report.

Personal spending added 190 bps, which was a bit better than expected and mostly led by spending on services. Government spending was the second biggest contributor, adding almost 60 bps, most of which was state and local spending. They are having to spend all the money they got from the Federal government via a few of the big programs legislated a few years ago.

Trade added 43 bps because of an almost 70 bps add via exports (in the face of a very mixed overseas demand picture), while imports took away 25 bps. Gross private investment contributed 40 bps with little add from residential investment and more from spending on “info processing” and “software.” Spending on “structures” (which can be a variety of things) added 10 bps. There was almost no contribution from inventories after the sharp Q3 build. 

Real final sales grew by 3.2% quarter-over-quarter annualized and final sales to private domestic purchasers were up by 2.6%. 

Adding seven tenths to the headline GDP report was the price deflator, which came in at 1.5% instead of 2.2% as expected. If it was in line, real GDP would have printed 2.6%, closer to the estimate of 2%. By the way, the core personal consumption expenditures price index was as expected and what the Federal Reserve is looking at. 

Bottom line? An in-line inflation deflator print would have put this figure at 2.6% versus the estimate of 2%. This number is going to get revised a few more times anyway and we’re already a month into Q1.

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