Q4 2016 GDP

Jan 27, 2017, 12:59 PM by Jeff Havsy

Preliminary U.S. GDP figures indicate growth of 1.9% (annualized) for the U.S. economy in Q4 2016, falling short of the consensus opinion of 2.2%. Given the unexpected boost to exports during Q3, a slower Q4 rate was expected; that consensus forecast was still higher than the result, however.

Real wages in the U.S. are growing in excess of 2%, which should help consumption. The 30-year "break-even" rate (the difference between inflation protected 30-year U.S. bonds and 30-year constant maturity bonds) now exceeds 2%, which indicates a market belief that long-term inflation will exceed the Fed’s stated target of 2%. As a result, barring an unexpected economic shock, the odds of three Fed Funds Rate increases in 2017 are likely as the Fed continues to normalize monetary policy. 


  • The increase in real GDP included contributions from almost all areas—consumption, housing, inventories, business investment and state and local government spending.
  • The 1.0% increase in inventories shows businesses' confidence that the economy will continue to grow at sustainable rate.
  • Residential investment increased by 10.2% as total housing starts capped off the strongest year since 2007. Multifamily has been the primary driver in residential construction.
  • The PCE price index grew by 2.0%, up from Q3's 1.5%. Meanwhile, growth in the core PCE index slowed to 1.3% from Q3's 1.7%.


  • The deceleration in growth was caused by a slowdown in exports, an increase in imports and slower federal spending. Exports fell 4.3%—not surprising since the third quarter number was inflated by a one-off jump in soybean exports.
  • Personal consumption expenditures slowed relative to the third quarter.
  • Disposable personal income rose 3.7% in Q4, compared to 4.1% in Q3.
  • Real GDP rose 1.6% in 2016, for the weakest year since 2011; by comparison, GDP grew 2.6% in 2015.

What are the implications for commercial real estate? Well, the growing skills mismatch in the U.S. labor force will likely result in slowing employment growth in 2017, which will adversely impact office demand. 2016 was a strong year for the industrial sector, and the market remains well positioned. Technology continues to generate growing demand, but performance may be affected by U.S. trade and immigration policy. Finally, strong wage growth will continue to drive improved retail sales. The tightening of monetary policy, however, will continue to place upward pressure on the U.S. dollar, which may impact tourism and luxury-goods consumption.  Finally, the tight labor market is boosting wages and could bring more people into the workforce, particularly millennials who favor renting to owning. Limited affordable single-family construction is also expected to funnel more demand to multifamily.

Deconstructing CRE

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