Solid Growth to Finish 2018

Normally, the end of January sees the government's first estimate of real GDP growth for the fourth quarter. But with no end in sight for the shutdown, which has already seen numerous other data releases postponed – including figures on retail sales, international trade, inventories, construction, and durable goods - it's very unlikely the GDP report will arrive on time.

Our GDP model looks at each major component of GDP – consumer spending, business investment, home building – and adds those parts up to get the big picture of what happened to the economy in that quarter. But with less data to put into the model, that means less accuracy. In turn, that means we need to use not only our usual "add-em-up" framework, but also look at the economy from a "top-down" view as well. And that perspective suggests we did quite well in Q4.

For example, industrial production at factories, mines, and utilities grew at a 3.7% annual rate in the fourth quarter. That's important because industrial production measures "units" of output - in other words it's a measure of "real" output – and over the past nine years, there's been almost zero difference, on average, between the growth rate of industrial production and real GDP growth on a year-over-year basis.

And another reason to be optimistic is that the number of hours worked in the private sector increased 2.1% in the fourth quarter. Tack on some modest add-factor for productivity growth (the increase in output per hour) and we could easily be at a growth rate of 3.0%, at least for the private sector.

Maybe this is why the stock market is up despite the lack of data. Investors can see the economy is not falling off a cliff. In fact, it remains very close to the above-trend growth rate of the past year. Right now, we're estimating real GDP grew at a 2.5% annual rate in Q4, which would bring the growth rate for 2018 to 3.1% (comparing the fourth quarter to the fourth quarter of 2017), the fastest pace since 2005.