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| June 29, 2017 - BEA Revises 1st Quarter 2017 GDP Growth Upward To 1.42%: |
In their third and final estimate of the US GDP for the first quarter of 2017, the Bureau of Economic Analysis (BEA) revised the growth of the US economy upward to a +1.42% annual rate, up +0.26% from their previous estimate for the first quarter but still down over a half percent (-0.66%) from the +2.08% reported for the fourth quarter of 2016.
Weak consumer spending grew at a meager +0.75% annualized rate during the quarter, up +0.31 from the previous estimate but still down a significant -1.65% from the prior quarter. The previously reported inventory contraction worsened slightly to a -1.11% annual pace (a swing of -2.12% from the prior quarter). Although government spending was revised upward +0.04%, it still contracted during the quarter, removing -0.16% from the headline.
The good news continued to be commercial fixed investment, which although revised downward -0.14% is still now adding +1.71% to the headline. Foreign trade was also revised upward slightly (+0.09%) to a +0.23% contribution to the headline number, up some +2.05% from the prior quarter.
The BEA's "bottom line" (their "Real Final Sales of Domestic Product", which excludes the contracting inventories) was more than a full percent better than the headline at +2.53%, up +1.46% from the 1.07% rate recorded 4Q-2016.
Real annualized household disposable income was essentially unchanged at an annualized $39,360 (in 2009 dollars). The household savings rate was revised -0.1% lower to 5.1%.
For the fourth quarter the BEA assumed an effective annualized deflator of 1.94%. During the same quarter (January 2017 through March 2017) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was lower at 1.54%. 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 somewhat higher at a +1.84% annualized growth rate.
Among the notable items in the report :
-- The headline contribution from consumer expenditures for goods was still a miniscule +0.11% growth rate (down -1.18% from the prior quarter).
-- The contribution to the headline from consumer spending on services strengthened as it was revised upward +0.27% to +0.64% (although that was down -0.47% from the prior quarter). The entirety of the increase came in upward revisions to the costs of healthcare and insurance (+0.38%). The combined consumer contribution to the headline number was +0.75%, down -1.65% from 4Q-2016.
-- The headline contribution from commercial private fixed investments was revised downward -0.14% to +1.71%, although that remained +1.25% higher than the prior quarter. That growth was primarily in non-residential construction.
-- Inventory contraction deducted -1.11% from the headline number, a downward revision of -0.04% from the previous estimate and down -2.12% from the prior quarter. 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.
-- Governmental spending was still reported to be contracting, although at a revised lower annual rate (at -0.16%, down -0.19% from the prior quarter).
-- Exports were revised upward +0.13% to a +0.82% contribution to the headline, a +1.37% improvement from the prior quarter.
-- Imports were revised downward (-0.04%), and they subtracted -0.59% from the headline number (up +0.68% from the prior quarter). In aggregate, foreign trade added +0.23% to the headline number after subtracting -1.82% during the prior quarter.
-- The "real final sales of domestic product" grew at an annualized 2.53%, up +0.30% from the previous estimate and up +1.46% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the reported inventory contraction.
-- As mentioned above, real per-capita annual disposable income was essentially unchanged. At the same time the household savings rate was revised downward again by -0.1%. It is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.32% in aggregate since the second quarter of 2008 -- a meager annualized +0.81% growth rate over the past 35 quarters.
The Numbers, As Revised
As a quick reminder, the classic definition of the GDP can be summarized with the following equation :
or, as it is commonly expressed in algebraic shorthand :
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
Quarterly Changes in % Contributions to GDP
Summary and Commentary
This revision boosts the headline growth about a quarter percent to +1.42% -- better but still tepid. The notable takeaways from this report are :
-- The largest upward revision was in consumer spending for healthcare and insurance.
-- The growth rate for consumer spending on goods remains anemic.
-- The inventory contraction worsened, possibly in anticipation of softer future consumer spending.
-- Foreign trade remained a bright spot and is not a drag on the headline number.
The US consumer may be spending more, but that increased spending is not on discretionary "life-style" goods. And as per usual, the Fed is once again projecting a return to "normalcy" in the form of 3% growth in future quarters -- with consumer spending leading the way. But if this past quarter's pattern persists those consumers may continue to face a toxic mix of stagnant disposable income, rising insurance costs and shrinking savings -- not exactly a formula for happy campers.