LIVE MARKETS-Major economic data hit this morning, remember? GDP, PCE, et al

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

MAJOR ECONOMIC DATA HIT THIS MORNING, REMEMBER? GDP, PCE, ET AL

Investors were subjected to an onslaught of mostly disappointing economic data on Friday, most of which was essentially forgotten following a certain court's ruling striking down a certain president's tariffs.

But about that data...

The U.S. economy grew by 1.4% at a quarterly annualized rate in the final three months of 2025, marking a stark deceleration from the third quarter's 4.4% growth rate and falling well short of the 3.0% consensus.

Much of the weakness was attributable to the 43-day government shutdown last fall, which the non-partisan Congressional Budget Office said would subtract 1.5 percentage points from economic growth in the October-December period.

Drilling below the surface of the Commerce Department's first stab at fourth-quarter GDP USGDPA=ECI, a sharp deceleration in final sales - to 1.2% from 4.5% - and imports and exports falling by 1.3% and 0.9%, respectively, are attention-grabbers, as are the 2.4% and 1.5% respective declines in investment in business and residential structures.

A drop in government spending was the biggest detractor, robbing 0.9 ppts from the headline number.

The report "confirms the economy slowed more than expected—but it didn’t stall, " says Gina Bolvin, President of Bolvin Wealth Management Group. "Growth came in well below forecasts, and while the government shutdown played a role, momentum clearly cooled into year-end."

Consumer spending, which accounts for about 70% of the U.S. economy, also lost steam, rising 2.4%, down from 3.5% in Q3. A 0.9% drop in expenditures on durable goods was offset by a 3.4% jump in spending on services. All told, while weakening substantially from the prior quarter, consumer spending contributed 1.6 percentage points to the topline.

The Commerce Department also released its highly anticipated December Personal Consumption Expenditures (PCE) report USPCE=ECI.

The PCE price index, Powell & Co's preferred inflation yardstick, is a good place to start.

Headline and core prices (which exclude food and energy items) both increased by 0.4% on monthly basis, double November's 0.2% rate.

Year-on-year, headline and core prices increased by 2.9% and 3.0%, respectively.

Every metric printed 0.1 ppt hotter than analyst expectations.

"This inflation data is disappointing and it underscores the Fed's need to be vigilant," Peter Cardillo, chief market economist at Spartan Capital tells Reuters. "Inflation remains the main worry for the Fed."

Elsewhere in the report, personal income increased as expected by 0.3%, a slight deceleration from November's 0.4% growth.

Personal consumption grew by 0.4%, in line with economists' projections and a repeat of the previous month's reading.

Digging deeper, spending on durable goods fell 0.3% and expenditures on nondurable goods were unchanged. Spending on services provided the only upside, rising by 0.7%.

Disposable income saw zero growth, which pushed the saving rate - or the unspent portion of disposable income - down to 3.6% from 3.7%.

S&P Global's advance "Flash" February purchasing managers' indexes (PMI) showed the manufacturing side USMPMP=ECI unexpectedly weakening 1.2 points to 51.2, well south of the 52.6 consensus.

The larger services sector USMPSP=ECI also defied expectations by losing momentum, shedding 0.4 of a point to 52.3.

In aggregate, the composite measure USPMCF=ECI weakened by 0.7 point to land at 52.3.

Still, all three metrics remain comfortably north of 50, the PMI dividing line between contraction and expansion.

"A combination of weakened demand, high prices, and adverse weather colluded to dampen business activity in February, resulting in the slowest expansion of output for ten months," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Shifting to the housing market, the sales of newly constructed single-family homes USHNS=ECI dropped by 1.7% in December to 745,000 units at a seasonally adjusted annualized rate (SAAR).

Even so, that's 2.1% more than the 730,000 analysts expected and marks a partial pullback from November's 15.5% surge.

At December's sales pace, it would take 7.6 months to sell every new home on the market, down from 7.7 months in November.

"At 472K units in December, unsold inventory remains only a touch below the 17-year high hit in May 2025," writes Oliver Allen, senior economist at Pantheon Macroeconomics. "Homebuilders are likely to deal with this substantial excess inventory in part by cutting prices ... but also are likely to whittle down inventory by continuing to cut back on new projects."

Finally, the University of Michigan's (UMich) second and final take on February consumer sentiment USUMSF=ECI surprised to the downside.

Economists predicted the topline would stand pat at 54.0, but UMich revised its initial take to 56.6.

Survey participants' assessment of present conditions deteriorated by 2.9%, while near-term expectations were unchanged.

But sentiment differed based on portfolio size, income and education divides.

"A sizable month-to-month increase in sentiment for the largest stockholders was fully offset by a decline among consumers without stock holdings," writes Joanne Hsu, UMich's director of consumer surveys. "Similar divergences were seen across income and education, where higher-income or college-educated consumers exhibited increases in sentiment while lower-income or less-educated counterparts did not."

The closely scrutinized inflation expectations element showed respondents expect annual price growth of 3.4% a year from now, within half a percentage point of today's core PCE reading of 3.0%.

Longer-term, consumers expect annual inflation of 3.3% five years from now.

(Stephen Culp)

EARLIER ON LIVE MARKETS:

US STOCKS GAIN AS COURT RULES AGAINST TRUMP'S TARIFFS CLICK HERE

US STOCK FUTURES WEAKEN SLIGHTLY IN WAKE OF PCE, GDP DATA CLICK HERE

MACRO CYCLE VS MARKET CYCLE CLICK HERE

IGNORE FUNDAMENTALS, FRENCH BONDS CAN KEEP RALLYING, SOCGEN SAYS, CLICK HERE

GEOPOLITICAL SELLOFFS USUALLY CREATE BUYING OPPORTUNITIES CLICK HERE

STOXX 600 IN THE LAP OF LUXURY CLICK HERE

EUROPE BEFORE THE BELL: FUTURES HIGHER, MARKETS SET FOR POSITIVE WEEK CLICK HERE

TRUMP THREATENS IRAN WITH FORCE CLICK HERE