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| June 28, 2018 - BEA Revises 1st Quarter 2018 GDP Growth Downward to 2.00%: |
In their third (and final) estimate of the US GDP for the first quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.00% annual rate, down -0.17% from their previous estimate and down -0.88% from the prior quarter.
The growth rate for consumer spending for services was revised downward again by -0.15%, and there was a minor upward revision (+0.04%) to consumer spending on goods -- although that spending was still net contracting (-0.09%). Similarly, the growth in inventories declined by -0.14% while the growth in commercial fixed investment rose by a counterbalancing +0.18%. The growth rates for both exports and imports weakened by an aggregate -0.12%.
Real annualized household disposable income increased by $29 per annum, and the household savings rate was revised upward +0.2% to 3.3%. While the savings rate remained below recent norms, it was +0.6% better than the prior quarter -- which was the lowest level seen since the third quarter of 2007.
For this revision the BEA assumed an effective annualized deflator of 2.19%. During the same quarter (January 2018 through March 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 2.53%. 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 lower at a +1.71% annualized growth rate.
Among the notable items in the report :
-- Consumer expenditures for goods contracted at a -0.09% annualized rate (down -1.76% from the prior quarter).
-- The contribution to the headline from consumer spending on services dropped -0.15% to +0.69%. The combined consumer contribution to the headline number was +0.60%, down over 2% (-2.15%) from 4Q-2017.
-- The headline contribution from commercial private fixed investments was +1.23%, up +0.18% from the previous report but down slightly (-0.08%) from the prior quarter.
-- Inventories subtracted -0.01% 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 revised upward slightly (+0.02%), adding +0.22% to the headline number (although that growth rate is down -0.29% from the prior quarter).
-- Exports contributed +0.44% to the headline number, down -0.39% from the prior quarter.
-- Imports subtracted -0.48% from the headline number, up +1.51% from the prior quarter. In aggregate, foreign trade subtracted -0.04% from the headline number.
-- The "real final sales of domestic product" growth was revised downward to +2.01%, down a substantial -1.40% 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 revised upward $29 in this report. The household savings rate was reported to be 3.3% (up +0.6% from the prior quarter). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.76% in aggregate since the second quarter of 2008 -- a meager annualized +0.77% growth rate over the past 39 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
The changes reflected in this report are arguably all just statistical noise. The major takeaways from this report were :
-- Consumer spending for goods was still reported to be contracting during the quarter, and the reported growth in services spending weakened materially.
-- The overall annualized growth rate for consumer spending dropped -2.15% on a quarter-to-quarter basis.
-- Although household disposable income improved quarter-to-quarter (most likely due to the reduced withholding rates in the "Tax Cuts and Jobs Act of 2017"), most of that improvement went into increased savings.
-- The BEA's deflators were once again boosting the headline number, in this case by +0.29%.
The headline from the report should have read: "Consumer spending on goods continued to contract, while consumer spending on services was revised downward yet again." If consumers are the driving force for the US economy, a report like this should be raising major caution flags.