July 28, 2017

2Q17 Gross Domestic Product (Advance Estimate) and Revisions Back to 2014 (072817): 2Q at Annualized 2.6 Percent; Three Previous Quarters Revised Down by 0.4-Point Average

Filed under: Economy,Taxes & Government — Tom @ 8:03 am

Well, the big day is here.

Today, the government will release its advance estimate of second-quarter economic growth. It will also issue revised figures for quarters and calendar years going back to 2014.

Predictions for the second quarter include the following:

  • GDPNow from the Federal Reserve Bank in Atlanta — an annualized 2.8 percent. That also is reportedly the consensus of “Blue Chip Consensus” reported there, with a range of the top 10 and bottom forecasts within that group as roughly 2.3 percent to 3.2 percent.
  • Moody’s is at 3.0 percent, as is the reported CNBC/Moody’s Analytics Survey seen there.
  • In a sign that the number may end up strong, I couldn’t find a prediction at the Associated Press’s main national site or at APNews.com at 7:40 a.m. As of 8:10 a.m., there was no mention of today’s report in the wire service’s Top 10 business stories. As of 8:30, there was no mention in its “10 Things to Know for Today.”
  • No bias here (that’s sarcasm) — Bloomberg is carrying a 2.7 percent estimate, claiming that “GDP figures to reflect dissipation of some temporary factors; Economy chugs along without chance for major acceleration.”
  • Reuters is predicting 2.6 percent, “which would confirm that the sluggish performance early in the year was temporary.”
  • Zero Hedge is showing a range from 2.0 percent to 3.5 percent.

The prior-year revisions going back three years will give a partial indication as to whether growth during the Obama era was better or worse than previously reported.

The report will be here at 8:30 a.m.

HERE IT IS (full text and tables link) A bit below the consensus expectation —

Real gross domestic product increased at an annual rate of 2.6 percent in the second quarter of 2017, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2 percent (revised).

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

… The acceleration in real GDP growth in the second quarter reflected a smaller decrease in private inventory investment, an acceleration in PCE, and an upturn in federal government spending. These movements were partly offset by a downturn in residential fixed investment and decelerations in exports and in nonresidential fixed investment.

Current-dollar GDP increased 3.6 percent, or $169.0 billion, in the second quarter to a level of $19,226.7 billion. In the first quarter, current-dollar GDP increased 3.3 percent (revised), or $152.2 billion.

The price index for gross domestic purchases increased 0.8 percent in the second quarter, compared with an increase of 2.6 percent in the first quarter (revised). The PCE price index increased 0.3
percent, compared with an increase of 2.2 percent. Excluding food and energy prices, the PCE price index increased 0.9 percent, compared with an increase of 1.8 percent.

More after analysis.

HERE are the past five quarters, as revised:


The biggest disappointment here is the downward revision to first quarter nonresidential fixed investment, which was a pretty robust 1.27 contribution to GDP but has now been cut by one-third. That line item drives long-term GDP growth more than any other. The runner-up is residential fixed investment, which was revised lower during each of the four previous quarters.

HERE is full list of quarterly and annual revisions:


Each quarter was revised up by an average of about 0.05 points (0.7 divided by 13). It’s worth noting that the last three quarters of the Obama era (considering 1Q16 to be a carryover from his policies) came in 1.2 points lower (an average of 0.4 points). Expressed another way, originally reported growth during those three quarters was reduced by about 17 percent (1.2 points divided by the original raw total of 7.0 points).

So the economy was definitely in worse shape than was originally thought coming into the Trump administration. The 2014 economy was somewhat stronger than originally thought, arguably influenced in an outsized way by large increases in health care spending, likely Obamacare-driven, in the final three quarters of that year.

Overall, today’s report was a nice improvement over the previous three quarters, but not acceptable long-term. It may be that the next two revisions will be positive, given that recent information on durable goods and the recent pattern of upward revisions to previous months’ retail sales data. But there are also indications that the Trump optimism bump has reached the end of its momentum, especially as it hasn’t been supported by beneficial congressional action.


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