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| August 29, 2018 - BEA Revises 2nd Quarter 2018 GDP Growth Upward to 4.23%: |
In their second 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 +4.23% annual rate, up +0.16% from their previous estimate and up +2.01% from the prior quarter.
None of the reported revisions were material. The growth rate for consumer spending for services was revised lower by -0.12%, and there was a -0.03% decline in the growth rate of consumer spending on goods. The contraction rate for inventories moderated slightly (+0.03%) to -0.97%, while the growth rate in commercial fixed investment rose by +0.13% to +1.07%. The growth rate for imports improved +0.13%.
Household disposable income was revised lower by $9 per annum, and the household savings rate was unchanged from the previous report at 6.8% (although that previous report contained extensive and significant upward revisions to historic savings rates).
For this revision the BEA assumed an effective annualized deflator of 3.24%. 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 downward -0.12% to +1.12% (but still up +1.25% from the prior quarter).
-- The contribution to the headline from consumer spending on services dropped -0.03% to +1.43%. The combined consumer contribution to the headline number was +2.55%, up over 2% (+2.19%) from 1Q-2018.
-- The headline contribution from commercial private fixed investments was +1.07%, down -0.27% from the prior quarter.
-- Inventories subtracted -0.97% 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 +0.41% to the headline number (and up +0.14% from the prior quarter).
-- Exports contributed +1.10% to the headline number, up +0.67% from the prior quarter.
-- Contrary to normal form, imports added +0.07% to the headline number, up +0.52% from the prior quarter. In aggregate, foreign trade boosted the headline number by +1.17%.
-- The "real final sales of domestic product" growth was revised upward to +5.20%, up a dramatic +3.25% 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 $9 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 :
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
Although the revisions in this report can be characterized as statistical noise, a headline number with +4.23% growth is outstanding under any circumstance. The stimulus expected from the "Tax Cuts and Jobs Act of 2017" seems to be materializing. And the BEA's own "bottom line" Real Final Sales growth was reported to be +5.20% -- a number that some might consider to be unsustainably high or an early indication of an overheating economy.
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 in order.