US GDP 2.6%, Employment Cost Index 0.6% q/q – USD stable

GDP rose 2.6% annualized. The ECI rose 0.6% as expected. Year over year, wages have risen 2.2%.  Personal consumption is up 4.3%, better than expected and strong  in general – the fastest since Q1  2006. Government spending dropped 2.2%, taking 0.4% off of GDP. Fixed investment rose 2.3%. The details are better than the headline.

The USD is marginally lower, with EUR/USD rising in range.

The greenback is sliding against the Japanese yen  remains stable against the euro and the pound while soaring against commodity currencies.

The United States was expected to report an annualized growth rate of around 3% in Q4 2015 after a final 5% growth rate for Q3. The preliminary read has a lot of impact, but it is not alone. The employment cost index is getting  attention as well and it was expected to rise by 0.6%. The recent wage numbers from the NFP were very disappointing, but the Fed did not mention them. What  did the Fed know?

Before the publication, EUR/USD traded around 1.13, GBP/USD around 1.5050, USD/JPY around 117.70, AUD/USD around 0.7777, NZD/USD at 0.7250 and USD/CAD around 1.2670.  Canada also  releases its GDP number at the same time.

The figures (updated)

• GDP  was expected to rise 3.3% (Annualized). Actual: 2.6% – a disappointment.
• Employment cost index was predicted to rise 0.6% q/q.. Actual: 0.6%. Year over year, it is up 2.2%.
• GDP Price Index was predicted to rise 1%. Actual: -0.1%.
• Personal Consumption Expenditure (PCE)  Prices were expected to rise 0.8%. Actual: -0.5%.
• Core PCE was expected to rise 1.2% q/q.. Actual:1.1%

GDP Background

The Federal Reserve left the “patience” wording regarding rate hikes unchanged but did upgrade its wording about the US economy and about the job market. There was no mention about wages: the recent NFP report showed a slide of 0.4% in wages during December and a rise of only 1.7% y/y. It’s hard to envision  core inflation without a rise in salaries.

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