1Q17 Gross Domestic Product (042817): An Annualized 0.7 Percent; GDP Deflator of 2.6 Percent Holds Back Reported Growth; Business Investment Comes Back Strong
Precursors: In general, the “hard number” economic reports haven’t reflected the strong “soft” numbers seen in consumer and business confidence surveys. Just one example: Yesterday’s initial reading on March durable goods orders.
- Atlanta Fed has an annualized +0.2 percent.
- Moody’s has +0.4 percent.
- Zero Hedge reports that JP Morgan has +0.3 percent.
- Yahoo’s Economic Calendar isn’t carrying predictions at the moment, which is weird.
- The Associated Press has 1.0 percent, with explanations for a decline from last quarter’s 2.1 percent “ranging from warmer-than-usual weather that held back utility production to an IRS delay in distributing tax refunds, which possibly dampened consumer spending at the start of 2017.” The AP’s Martin Crutsinger also brought up “residual seasonality,” the idea (which I don’t buy) that the first quarter of every year gets penalized because of inaccurate seasonal adjustments.
My cynical take is that if history repeats itself, now that we’re in a Republican administration, initial numbers in economic reports will come in soft and then generally improve in future revisions and annual updates, which was in very general terms a phenomenon seen during the Bush 43 and Reagan administrations.
The GDP report will be here at 8:30.
HERE IT IS (full release with tables here): Marginally better than the two major trackers —
Real gross domestic product (GDP) increased at an annual rate of 0.7 percent in the first quarter of 2017, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2016, real GDP increased 2.1 percent.
… The increase in real GDP in the first quarter reflected positive contributions from nonresidential fixed investment, exports, residential fixed investment, and personal consumption expenditures (PCE), that were offset by negative contributions from private inventory investment, state and local government spending, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the first quarter reflected a deceleration in PCE and downturns in private inventory investment and in state and local government spending that were partly offset by an upturn in exports and accelerations in both nonresidential and residential fixed investment.
… Current-dollar GDP increased 3.0 percent, or $137.9 billion, in the first quarter to a level of $19,007.3 billion. In the fourth quarter, current-dollar GDP increased 4.2 percent, or $194.1 billion.
The price index for gross domestic purchases increased 2.6 percent in the first quarter, compared with an increase of 2.0 percent in the fourth quarter (table 4). The PCE price index increased 2.4 percent, compared with an increase of 2.0 percent.
Personal Income (table 10)
Current-dollar personal income increased $161.9 billion in the first quarter, compared with an increase of $154.6 billion in the fourth. The acceleration in personal income primarily reflected an acceleration in government social benefits to persons that was partly offset by a downturn in personal dividend income.
Disposable personal income increased $121.0 billion, or 3.4 percent, in the first quarter, compared with an increase of $141.6 billion, or 4.1 percent, in the fourth. Real disposable personal income increased 1.0 percent, compared with an increase of 2.0 percent.
The government’s 2.6 percent GDP deflator seems to be on the high side, and obviously has a big effect on the end result.
More shortly …
UPDATE: Here’s the breakdown —
So there was virtually no increase in personal consumption spending? Really? Consistent with the take expressed earlier, I’d guess that future revisions are going to take this number up. The inventory shrink also seems overstated.
Longer-term, the most important line item above is the 1.12-point increase in Fixed Nonresidential Investment. As seen above, the previous four quarters for that item were very weak, and even included a contraction. Going back further, it’s the best result since 4Q13, and the fourth-best quarterly result in the past 11 years. Comparing to annual results in previous years (obviously if sustained for a full year), it would be the best result since 2000. Business investment drives productivity which drives future growth and higher living standards. We haven’t seen enough growth in business investment for quite some time, which explains why productivity has lagged and why living standards haven’t advanced as much as seen before the most recent recession, and by even less than what was seen before the turn of the century.