Fourth quarter GDP to show businesses spent, but consumers held back
A worker wearing a protective face mask operates a forklift to move boxes of face shields ready for shipment at the Cartamundi-owned Hasbro manufacturing facility in East Longmeadow, Massachusetts, April 29, 2020.
Adam Glanzman | Bloomberg | Getty Images
The economy continued to chug along in the fourth quarter, boosted by a surge in business spending while consumers held back.
Fourth-quarter gross domestic product is reported at 8:30 a.m. ET Thursday. It’s expected to show the economy grew at a 4.3% pace from the prior quarter on an annualized basis, according to Dow Jones.
Year-over-year, the economy is expected to have contracted 3.5% in 2020, according to the CNBC/Moody Analytics Rapid Update survey of economists. It was a year that saw a record pandemic-induced plunge in activity and a sharp snapback. The economy grew by 33.4% in the third quarter, after the second quarter’s sharp contraction of 31.4% The first quarter was also hit by the pandemic, contracting by 5%.
Economists are watching the fourth quarter report for clues on how the economy entered the first quarter, and how hard the pandemic shutdowns impacted activity at the end of the fourth quarter.
“There might be enough in it to assure people that it’s not going negative in the first quarter,” said Chris Rupkey, chief financial economist at MUFG Union Bank.” Consumer spending was negative three months in a row.”
“A lot of what we’re seeing is inventory build up,” he added. “Inventory build up could be responsible for two or three percentage points. It’s still growth, but it’s not sustainable growth. It was at a low level and now it’s rebuilt.”
Rupkey expects the economy grew by 5% in the fourth quarter, and he forecasts the first quarter could grow by 3.5%.
“It’s a little more in the rearview mirror because we’re wondering what’s going on in the first quarter, and we’re wondering whether the stimulus is going to lift the economy enough to avoid a negative quarter,” Rupkey said. He said the $600 stimulus checks sent to individuals should help first-quarter consumption.
Barclays economists said the durable goods report Wednesday shows that business spending was strong in the fourth quarter.
“These estimates bode well for continued strength in business investment in the current quarter and in Q4,” the economists wrote. They now estimate a 27.4% increase in the fourth quarter over the third quarter in business equipment spending, up from 21.4% before the latest durable goods report.
“December’s core capital goods numbers put equipment investment on track for another robust gain in Q4 2020, and imply solid carryover effects for the rate of increase in the first quarter,” the economists noted.
