GDP upside, half of which comes from weaker inflation deflator/Claims data

Here were the key contributors to the big upside GDP surprise of 3.3% in Q4 relative to the estimate of up 2%. Personal spending added 190 bps, which was a bit better than expected and mostly led by spending on services. Government spending was the 2nd biggest contributor, adding almost 60 bps, most of which was state and local spending (they are having to spend all the money they got from the Federal Govt via a few of the big programs legislated a few years ago). Trade added 43 bps because of an almost 70 bps add via exports (in the face of a very mixed overseas demand picture) while imports took away 25 bps. Gross private investment contributed 40 bps with little add from residential investment and more from spending on 'info processing' and 'software.' Spending on 'structures' (and can be a variety of things) added 10 bps. There was almost no contribution from inventories after the sharp Q3 build. 

Real final sales grew by 3.2% q/o/q annualized and final sales to private domestic purchasers were up by 2.6%. 

Adding 7 tenths too to the headline GDP report was the price deflator that came in at 1.5% instead of 2.2% as expected so if it was in line, real GDP would have printed 2.6%, closer to the estimate of 2%. By the way, core PCE was as expected and what the Fed is looking at. 

Bottom line, as stated, an in line inflation deflator print would have put this figure at 2.6% vs the estimate of 2% and this number is going to get revised a few more times anyway and we’re already a month into Q1 so nothing really to trade off. The 2 yr yield and 5 yr inflation breakeven are not moving in response. The 10 yr yield is slipping back by 3 bps after rising by 5 yesterday but down by 1 bp post number.