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mining tracking data for an understanding of what American consumers were doing yesterday."

     
  September 27, 2018 - BEA Leaves 2nd Quarter 2018 GDP Growth Essentially Unchanged at 4.16%:

In their third (and final) estimate of the US GDP for the second quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +4.16% annual rate, down an inconsequential -0.07% from their previous estimate and but still up +1.94% from the prior quarter.

None of the reported revisions were material. The growth rate for consumer spending for goods was revised upward by +0.04%, and there was a -0.01% decline in the growth rate of consumer spending on services. The contraction rate for inventories worsened (-0.20%) to -1.17%, while the growth rate in commercial fixed investment rose by +0.03% to +1.10%. The growth rate for imports improved to +0.10%.

Household disposable income was revised downward by $1 per annum, and the household savings rate was unchanged from the previous report at 6.8%.

For this revision the BEA assumed an effective annualized deflator of 3.31%. During the same quarter (April 2018 through June 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was significantly lower at 2.26%. Over estimating inflation results in pessimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been much higher at a +5.36% annualized growth rate.

Among the notable items in the report :

-- The headline contribution from consumer expenditures for goods was revised upward +0.04% to +1.16% (up +1.29% from the prior quarter).

-- The contribution to the headline from consumer spending on services dropped -0.01% to +1.42%. The combined consumer contribution to the headline number was +2.58%, up over 2% (+2.22%) from 1Q-2018.

-- The headline contribution from commercial private fixed investments was +1.10%, down -0.24% from the prior quarter.

-- Inventories subtracted -1.17% from the headline number. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The growth in governmental spending was up slightly, adding +0.43% to the headline number (and up +0.16% from the prior quarter).

-- Exports contributed +1.12% to the headline number, up +0.69% from the prior quarter.

-- In a continuation of inverted form, imports added +0.10% to the headline number, up +0.55% from the prior quarter. In aggregate, foreign trade boosted the headline number by +1.22%.

-- The "real final sales of domestic product" growth was revised upward to +5.33%, up a dramatic +3.38% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was down $1 per year from the previous report. The household savings rate was reported to be unchanged at 6.8%.



The Numbers, as Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)


or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)


In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table

Total GDP = C + I + G + (X-M)
Annual $ (trillions) $20.4 = $13.9 + $3.6 + $3.5 + $-0.5
% of GDP 100.00% = 67.98% + 17.54% + 17.18% + -2.69%
Contribution to GDP Growth % 4.16% = 2.58% + -0.07% + 0.43% + 1.22%


The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP

2Q-2018 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015
Total GDP Growth 4.16% 2.22% 2.29% 2.82% 3.00% 1.79% 1.77% 1.92% 2.28% 1.54% 0.41% 0.97% 3.35% 3.32%
Consumer Goods 1.16% -0.13% 1.42% 0.86% 1.17% 0.40% 0.58% 0.70% 1.01% 0.72% 0.51% 0.91% 1.02% 0.94%
Consumer Services 1.42% 0.49% 1.22% 0.65% 0.79% 0.82% 1.17% 1.09% 1.29% 0.90% 1.02% 1.00% 1.29% 1.41%
Fixed Investment 1.10% 1.34% 1.04% 0.44% 0.72% 1.60% 0.28% 0.52% 0.46% 0.31% -0.33% 0.51% 0.63% -0.01%
Inventories -1.17% 0.27% -0.91% 1.04% 0.23% -0.80% 1.03% -0.59% -0.62% -0.62% -0.70% -0.73% -0.25% 2.16%
Government 0.43% 0.27% 0.41% -0.18% 0.01% -0.13% 0.03% 0.17% -0.15% 0.60% 0.12% 0.33% 0.70% 0.40%
Exports 1.12% 0.43% 0.79% 0.42% 0.44% 0.59% -0.44% 0.71% 0.39% -0.31% -0.28% -0.44% 0.48% -0.56%
Imports 0.10% -0.45% -1.68% -0.41% -0.36% -0.69% -0.88% -0.68% -0.10% -0.06% 0.07% -0.61% -0.49% -1.02%
Real Final Sales 5.33% 1.95% 3.20% 1.78% 2.77% 2.59 0.74% 2.51% 2.90% 2.16% 1.11% 1.70% 3.60% 1.16%




Summary and Commentary

All of the revisions in this report can be characterized as statistical noise. Nonetheless, a headline number with +4.16% growth is very good, confirming that the stimulus expected from the "Tax Cuts and Jobs Act of 2017" has materialized. And the BEA's own "bottom line" Real Final Sales growth was reported to be +5.33%.

As we have mentioned before, this kind of growth signals that the Fed's accommodations over the past decade are certainly no longer needed. And if the growth persists in this range for another quarter or two, significant tightening might be warranted to prevent the economy (and wage-price inflation) from overheating.
 
     

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