March 31, 2017

4Q16 Gross Domestic Product, Third Estimate (033017): An Annualized 2.1 Percent

Filed under: Economy,Taxes & Government — Tom @ 8:21 am

Thursday’s release was the “final” estimate for the final full quarter of the Obama administration, though there will be a comprehensive revision in July which will likely affect the past three to five years of results, and at least in theory the government could change their estimates going back as many years as they feel necessary.

Predictions were for an annualized 2.0 percent, up from the 1.9 percent estimate in the initial and second estimates.

The actual result was 2.1 percent:

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the fourth quarter of 2016, according to the “third” estimate released by the Bureau of Economic Analysis. In the third quarter of 2016, real GDP increased 3.5 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 1.9 percent.

With this third estimate for the fourth quarter, the general picture of economic growth remains largely the same; personal consumption expenditures (PCE) increased more than previously estimated.

Real gross domestic income (GDI) increased 1.0 percent in the fourth quarter, compared with an increase of 5.0 percent in the third. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 1.5 percent in the fourth quarter, compared with an increase of 4.3 percent in the third quarter.

The increase in real GDP in the fourth quarter reflected positive contributions from PCE, private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the fourth quarter reflected downturns in exports and in federal government spending, an acceleration in imports, and a deceleration in nonresidential fixed investment that were partly offset by accelerations in private inventory investment and in PCE, and upturns in residential fixed investment and in state and local government spending.

Current-dollar GDP increased 4.2 percent, or $194.1 billion, in the fourth quarter to a level of $18,869.4 billion. In the third quarter, current-dollar GDP increased 5.0 percent, or $225.2 billion.

Updates to GDP

The upward revision to the percent change in real GDP primarily reflected upward revisions to PCE and to private inventory investment that were partly offset by downward revisions to nonresidential fixed investment and to exports. Imports, which are a subtraction in the calculation of GDP, were revised upward.

… Real GDP increased 1.6 percent in 2016 (that is, from the 2015 annual level to the 2016 annual level), compared with an increase of 2.6 percent in 2015

Here are the updated results for the past five quarters:

GDPcomponentsThru4Q16at033017

One could argue that the main drivers of the increase in GDP growth in the third estimate compared to the second (+0.35 points in personal consumption expenditures and 0.07 points in inventory increases) could have been the result of a Trump effect which encouraged consumers to spend a little more and businesses to build up their inventory stockpiles in anticipation of that improvement continuing. Whether there’s strong basis for that optimism remains to be seen.

Even with the change, growth in the fourth quarter was far slower than what was seen in the third, and 2016 full-year growth was far slower than seen in 2015. Anyone who doesn’t think we’re fortunate to have a change in presidential direction is suffering from serious delusions.

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