Weekly Economic Report 1.2.26

Happy New Year! As last year ended, we continued the string of much better-than-expected economic indicators with the stunning 4.3% annualized growth rate for real GDP in the third quarter. Clearly, exports had a lot to do with the number – and in many ways it is a fill for the very weak -0.8% growth rate reported for the first quarter. However, even without exports, growth in final sales to domestic purchasers was up at a 2.9% annual rate. Perhaps even more stunning was the 8.2% growth rate for nominal GDP – due to a whopping 3.8% GDP deflator, well in excess of the 2.8% consumption deflator favored by the Federal Reserve. Inflation in the investment sector ran at 5.0%, while for Government it was 4.4%. The central bank needs to keep in mind that the consumer accounts for only two-thirds of the US economy. While the CPI and the PCE deflator are handy, because they are reported monthly (when they are reported), easy money can still affect the other one third of the economy – as this quarterly report shows! In all three sectors, Consumption, Investment and Government, nominal growth ran with a six-handle, so there was plenty of momentum for both strong real growth and continued inflation concerns. In the fourth quarter, a moderation in inflation may allow another stellar quarter for real GDP growth – particularly when compared to a lower potential due to immigration reform.

EU01-02-2026.pdf

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