Economists were expecting a +0.4% QoQ SAAR GDP reading for Q4 2015 on the second reading from the BEA this morning, but growth came in much higher at +1.0% QoQ SAAR. However, the most important categories (in our view), Consumption and Fixed Investment, were both revised downward slightly. Less goods consumption and a slightly slower rate of residential fixed investment weighed, with goods contributing the most. The upward revision to the headline was instead driven by less negative contribution from inventories. Growth in stockpiles of goods reduced GDP by 14 bps QoQ SAAR, versus a -45 bps SAAR impact on the initial release. Also contributing to higher growth was slower imports, which makes sense if goods consumption was lower. Finally, government spending was revised down with Federal outlays contributing +15 bps SAAR versus +18 bps SAAR on the initial release. Local government spending was revised dramatically lower, to -16 bps contribution; that’s the weakest since the recession. This is extremely surprising and in our view unlikely to continue given strong employment, real estate prices, and steady balance sheet repair across that spectrum of government.
Overall, while it’s nice to see growth revised up, it was revised up for the wrong reasons. The brutal contraction in state and local spending is also painful. We’ll have more on this in our weekly Bespoke Report tonight; sign up for any of our research offerings to view the report when it’s sent out this evening.