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| October 27, 2017 - BEA Estimates 3rd Quarter 2017 GDP Growth at 2.98%: |
In their first (or "preliminary") estimate of the US GDP for the third quarter of 2017, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.98% annual rate, down -0.08% from the prior quarter.
The changes from the prior quarter reflect a general weakening of consumer and commercial spending growth, nearly offset by increased inventories and reduced imports. The contribution from consumer spending on goods dropped -0.24%, while the contribution from spending on services dropped -0.38% (a combined -0.62%). The inventory contribution became significant, at +0.73%, roughly a quarter of the entire growth. The contribution from fixed commercial investment was halved to +0.25% (from +0.53%). Governmental spending remained in a very minor contraction (-0.02%). The contribution from exports dropped -0.14% to +0.28%, while the contribution from imports turned positive, at +0.12%.
The BEA's "bottom line" (their "Real Final Sales of Domestic Product", which excludes inventories) decreased to +2.25%, down -0.69% from the prior quarter.
Real annualized household disposable income dropped -$19 to $39,280 (in 2009 dollars). The household savings rate also dropped -0.4% to 3.4%, the lowest level since the fourth quarter of 2007.
For this revision the BEA assumed an effective annualized deflator of 2.16%. During the same quarter (July 2017 through September 2017) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 4.31%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been materially lower at an +0.89% annualized growth rate.
Among the notable items in the report :
-- The headline contribution from consumer expenditures for goods was reported to be +0.92% (down -0.24% from the prior quarter).
-- The contribution to the headline from consumer spending on services weakened to +0.70% (down -0.38% from the prior quarter). The combined consumer contribution to the headline number was +1.62%, down -0.62% from 2Q-2017.
-- The headline contribution from commercial private fixed investments decreased to +0.25%, down more than half (-0.28%) from the prior quarter. That continued to reflect a contraction in residential construction.
-- Inventory growth provided a material boost to the headline number (+0.73%). This was a +0.61% improvement 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 reported to be contracting very slightly, at a -0.02% rate. This was a +0.01% improvement from the prior quarter.
-- Exports contributed +0.28% to the headline number, down -0.14% from the prior quarter.
-- Imports added +0.12% to the headline, which was up +0.34% from the prior quarter. In aggregate, foreign trade added +0.42% to the headline number.
-- The "real final sales of domestic product" grew at an annualized 2.25%, down -0.69% 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 income reportedly dropped -$19 per annum. At the same time the household savings rate was reported to have dropped to 3.4% (down -0.4% from the prior quarter). It is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.10% in aggregate since the second quarter of 2008 -- a meager annualized +0.74% growth rate over the past 37 quarters.
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
The minimal change in the quarter-to-quarter headline growth rate masks a material weakening of consumer and commercial spending growth. The notable takeaways from this report are :
-- Consumer spending provided only 1.62% of the headline number, dropping -0.62% from the prior quarter.
-- Commercial fixed investment softened, dropping more than half of its 2Q-2017 growth.
-- Inventory growth is again distorting the headline.
-- Household disposable income took another hit. Less money was available, and less money was saved -- so that a significant portion of the already softening consumer spending came from savings, not pay checks.
A headline number sustained by bloating inventories and diminished savings is simply not quite as healthy as it might seem at first blush.