GDP Growth Not as Disappointing as It Looked
A closer look at the details of Friday's GDP report reveals that a massive inventory adjustment torpedoed the top-line number.
This week, geopolitical news out of Egypt took the stage and dwarfed both economic news and earnings reports. Unrest in the Middle East always raises the specter of higher oil prices, which are already becoming problematic for the economy. In addition, potential threats to the Suez Canal, which adjoins Egypt, raise concerns about one of the most important shipping lanes in the world. Any interruption could slow worldwide economic growth.
Economic News Could Have Been Better, but the Bar Was Set High
On the economic front, fourth-quarter GDP growth of 3.2% appeared to disappoint investors, though a closer look at the details reveal that a massive inventory adjustment torpedoed the top-line number. Consumer data contained within the report (which drives long-term GDP growth) were ahead of expectations. Separately, housing data were on balance positive, while initial unemployment claims continued to yo-yo up and down. Weather- and holiday-related processing catchups caused yet another spike in claims this week that will most likely be reversed again next week
Earnings News Was Nothing to Write Home About
Earnings news this week was mixed. Tech and manufacturing continue to surprise on the upside, while retailers and financial institutions are having a harder time meeting high expectations. Two higher-profile names, Ford (F) and Amazon (AMZN), disappointed this week, but for all the right reasons. Ford's revenue was fine, but costs of new car launches and debt extinguishment weighed on results. Amazon's results disappointed as the firm continued to invest in infrastructure and technology. It's good to see businesses willing to finally make additional capital expenditures in pursuit of long-term growth.
Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.