While I honestly expected this morning’s Q4 GDP number (the first of three estimates; so revisions may follow) to come in below the consensus estimate of 2.1% (it came in at 2.1%), the internals resoundingly confirm our present assessment of general conditions (consumers stable, businesses not).

In a nutshell:


1. The consumer, while having moderated his/her spending vs previous reports, is still doing the heavy lifting: Spending was up 1.8% (although, that’s the lowest since Q1 ’19).


2. Residential construction (again the consumer) was definitely the bright spot; up 5.8% — best in two years!


3. A narrowing trade deficit boosted the overall number as well. However, it was for absolutely the wrong reasons: Both imports and exports fell. Imports fell more than exports, which doesn’t speak well of U.S. strength. Plus, to top it off, nearly 80% of the drop in imports was due to a drop in companies’ inventories (not a sign of a super-strong domestic economy).


4. A pickup in government spending — concentrated in defense and state & local — helped.


5. Where this all fits our thesis is when we get to the business side of the equation: Business investment fell 1.5% in Q4, after declining 2.3% in Q3.


NatWest’s senior U.S. economist echoes our concerns:

“The outlook for the business investment side of things is pretty dark.”

Should some sunlight not begin to penetrate the persistent business darkness we’ve been pointing to for months, and, thus, clouds begin forming over the consumer space, well… we’ll keep you posted.