The annualized GDP growth rate (3rd estimate), of the 4th quarter of 2016 was 2.1%. This was down from the 3rd quarters 3.5% growth rate but stronger than the average 1.7% value over the prior four quarters. Consumer spending was the principal driver, contributing 2.4 percentage points, a jump of 0.4 percentage points over the third quarter. Fixed non-residential plus fixed residential plus inventories added 1.5 percentage points as government added a small fraction, (0.03). Net exports were the only drag, pulling the total down 1.82 percentage points.
Figure 1 shows the headline quarterly results since 2011 and the January IMF forecast for 2017. In its latest World Economic Outlook the IMF upgraded its GDP outlook for the US by 0.1 percentage points to 2.3% in 2017 and by 0.4 percentage points to 2.5% in 2018. Historically it has been necessary to have about a 2.0% growth in GDP to get any growth in steel demand so this latest estimate of GDP suggest that at least steel demand won’t contract in the immediate future. This relationship is a long term average and in reality steel is much more volatile than GDP. If GDP takes a dive then steel demand craters and if GDP takes a sudden upturn steel soars. Neither of these extremes is evident at present. GDP is measured and reported in chained 2009 dollars and in the 3rd estimate of Q4 was $16.813 trillion, up 2.0% over the same period last year. The growth calculation is misleading because it takes the Q over Q change and multiplies by four to get an annualized rate. This makes the high quarters higher and the low quarters lower.
Figure 2 shows a pie chart of components of GDP in Q4 2016 as a percent. Consumer spending topped the list at 69.4%, followed by Services at 44.9%, Government at 17.3%, Non-durables at 15.0%. Fixed non-residential investment was next with 13.1%, followed by Fixed residential investment at 3.5%. Inventories and Net exports were the smallest pieces of the pie at 0.3% and negative 3.6% respectfully.
The US economy expanded at trend ending the year 2016. Heading into to 2017 the main concern continues to be the strong US dollar and the resultant negative impact on trade. However most other econometrics point to continued expansion. These include; Strong job creation, increasing wages, robust consumer and business confidence. In addition household debt burden remains in check as household balance sheets are in the nest shape in decades.
At Gerdau we monitor GDP on a regular basis. Gross Domestic Product is a measure of the total production and consumption of goods and services in the U.S. This is the broadest measure of economic output. In other word the “Report Card” on the strength of the US economy. We know that when GDP growth is strong steel sales are strong too.