Data released today showed that Q4 GDP was revised lower from 2.6% to 2.2%. According to analysts at Wells Fargo, the revised numbers signals the US economy continued to create income at a solid pace. They expect corporate profit growth to slow meaningfully going forward.
Key Quotes:
“The broad weakness in the retail environment at the end of last year caused consumer spending to increase only 2.5%, down from the initial 2.8% estimate, with the weakness concentrated in goods consumption. Fixed investment also saw smaller increases than initially reported in both the nonresidential and residential omponents of spending. But, a smaller increase in imports resulted in a more modest drag from net exports than previously reported.”
“Today’s GDP release continues to show that the rate of economic growth in the United States has downshifted a bit over the past few quarters. Our current forecast looks for further deceleration in the first quarter, but we then look for a modest rebound starting in Q2.”
“The data also included the first look at economy-wide corporate profits in the fourth quarter. On a pre-tax basis, corporate profits were up 7.4% on a year-ago basis in Q4, down modestly from roughly 10% growth in the third quarter. After tax, profits grew 14.3% (bottom chart).
“The deceleration in GDP growth this year will weigh on corporate profit growth, while increased labor costs pose a threat to margins. We look for corporate profits to continue to rise this year, albeit at a more moderate pace.”
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