October 27, 2017

3Q17 Gross Domestic Product, First Estimate (102717): An Annualized 3.0 Percent

Filed under: Economy,Taxes & Government — Tom @ 8:23 am

This report seems to have snuck up on everyone, which is not surprising, because the press is not giving the economy much attention these days. Given that this is a Republican presidential administration and it’s fairly hard to find bad news — though I still think that growth isn’t where it could or should be — that’s not surprising.

In September, the second quarter’s gross domestic product growth came in at an annualized 3.1 percent, up from earlier estimates of 2.6 percent in July and 3.0 percent in August. That result is consistent with years of watching revisions go up during Republican administrations and down during Democratic administrations. Interesting how that seems to work, isn’t it?

Here are predictions for today’s report on the third quarter, starting with a surprising difference between two models which usually don’t differ by all that much, at least not by as much as they do today:

  • The Atlanta Fed’s GDP Now estimate is an annualized 2.5 percent.
  • In an unusual situation, Moody’s is estimating a much higher figure — “The new data on new-home sales and durable goods raised our high-frequency GDP model’s estimate of third quarter GDP from 3.4% to 3.6% at an annualized rate.”

Unless the figure comes in at about 3.0 percent, one of these two behemoths is going to have to reexamine their model after today’s release. If 3.0 percent or so is today’s figure, they’re both going to be scratching their heads.

Moody’s is also reporting a consensus estimate of an annualized 2.8 percent in its CNBC survey of economists.

The Wall Street Journal is estimating 2.7 percent.

The Associated Press must be expecting good news, as the issuance of the GDP report, which is obviously darned important, is not one of its Top 10 Things to Know for today. Though it’s difficult to find anything at AP these days (explained here for those who missed the post earlier in the week), I couldn’t quickly locate an advance writeup or story containing a prediction of third-quarter growth.

The report will be here at 8:30.

HERE IT IS (full report with tables): What do you know, right smack dab in between Moody’s and the Atlanta Fed, and slightly beating the consensus estimates noted above —

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the third quarter of 2017 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.1 percent.

The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 2). The “second” estimate for the third quarter, based on more complete data, will be released on November 29, 2017.

The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, nonresidential fixed investment, exports, and federal government spending. These increases were partly offset by negative contributions from residential fixed investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased (table 2).

The deceleration in real GDP growth in the third quarter primarily reflected decelerations in PCE, in nonresidential fixed investment, and in exports that were partly offset by an acceleration in private inventory investment and a downturn in imports.

Current-dollar GDP increased 5.2 percent, or $245.5 billion, in the third quarter to a level of $19,495.5 billion. In the second quarter, current-dollar GDP increased 4.1 percent, or $192.3 billion (table 1 and table 3).

The price index for gross domestic purchases increased 1.8 percent in the third quarter, compared with an increase of 0.9 percent in the second quarter (table 4). The PCE price index increased 1.5 percent, compared with an increase of 0.3 percent. Excluding food and energy prices, the PCE price index increased 1.3 percent, compared with an increase of 0.9 percent (appendix table A).

Personal Income (table 10)

Current-dollar personal income increased $113.7 billion in the third quarter, compared with an increase of $119.1 billion in the second. The deceleration in personal income primarily reflected decelerations in personal dividend income, in rental income, and in wages and salaries that were offset by an acceleration in government social benefits, a smaller decrease in personal interest income, an acceleration in nonfarm proprietors’ income, and a smaller decrease in farm proprietors’ income.

Disposable personal income increased $73.6 billion, or 2.1 percent, in the third quarter, compared with an increase of $125.1 billion, or 3.6 percent, in the second. Real disposable personal income increased 0.6 percent, compared with an increase of 3.3 percent.

Personal saving was $494.8 billion in the third quarter, compared with $545.6 billion in the second. The personal saving rate — personal saving as a percentage of disposable personal income — was 3.4 percent in the third quarter, compared with 3.8 percent in the second.

I’ll have the components table up shortly.

___________________________________

UPDATE: Here it is —

GDPcomponentsThru3Q17at102717

Given Moody’s reasons for their higher GDP estimate noted earlier, it would seem that the contraction in the residential fixed investment component may be overstate.

The fixed nonresidential investment figure is disappointing, but, Moody’s also pointed to durable goods as a reason for its higher estimate. So it may be that the overall figure will head higher in the November and December revisions.

It’s also good to see that Health Care continued not to be a big contributor to third quarter growth, as it was during the Obama era, when in my view the reported figures mostly represented market distortions caused by Obamacare and not genuine standard of living improvements.

The positive Inventory Change figure would seem to indicate optimism for the upcoming Christmas shopping season. Let’s hope it’s justified. I’m not so sure, given that so many consumers are far more leveraged, i.e., in debt, than they should be.

UPDATE 2: The 6.1 percent sum of the past two quarters is okay, but the Obama economy, for all of its mediocrity, had larger two-quarter totals several times, most recently during the second and third quarters of 2014. Additionally the sum of Q1-2015 and Q2-2015 was 5.9 percent. So although President Trump will probably do his predictable Twitter thing with today’s news, hold my champagne for later, much better quarters, or at least several more quarters that replicate or slightly beat the past two — if they come.

UPDATE 3: The reason I perhaps should be more impressed with the 3.0 percent third-quarter performance is that it happened in a quarter with two major hurricanes. According to AP, “many private economists believe shaved at least one-half percentage point off growth.” I’m not so sure. Neither is an economist quoted by AP, who says that the hurricanes had “little lasting impact on the economy.” (I realize that doesn’t necessarily preclude a third-quarter to fourth-quarter shift, but it may. Sadly, this economist also believes that Trump’s variously stated 3.0 percent to 4.0 percent annual growth target isn’t achievable.)

Harvey hitting Texas in late August allowed for almost full month of recovery construction to take place, which I would argue might have partially or mostly offset the obvious shutdowns of businesses which occurred during the hurricane.

The GDP hit for Irma was probably worse, given that it hit Florida on September 10, and there was much less time for recovery activities to make up for lost business operations during the hurricane.

Share

3 Comments

  1. A couple of quick thoughts, focused on the 2-quarter growth metric:

    - Only twice did the Obama era see two consecutive quarters of 3.0%+ (rounded, annualized) growth: 3Q/4Q 2013 and 2Q/3Q 2014. Bush43 saw 5 of those, all within 2 periods with 3 and 4 consecutive quarters of 3.0%+ GDP growth (2Q/3Q/4Q 2003 and 3Q/4Q 2004/1Q/2Q 2005).

    - The 3.02% (annualized) growth over the last 2 quarters was topped only 5 times (out of 31 “non-transition” reporting periods) in the Obama era: 2Q/3Q 2010, 4Q 2011/1Q 2012, 3Q/4Q 2013, 2Q/3Q 2014, and 3Q/4Q 2014. The Bush43 era had 9 2-quarter growth spurts greater than the last 2 quarters.

    Of course, it doesn’t mean a thing unless there’s consistency. The economy during both the Obama and Bush43 eras were worse by at least an order of magnitude than the economy during every other President since Truman.

    Comment by steveegg — October 27, 2017 @ 11:14 pm

  2. I’ve seen a story already that is poo pooing the 3% annualized GDP growth, IT CAN’T LAST…

    Why 3% GDP growth is unlikely to last

    https://finance.yahoo.com/news/3-gdp-growth-unlikely-last-163507249.html

    I think that is aspirational on their part. They commented on the effect of the hurricanes on the video. I think a quote from Hillary is appropriate here: I think that the reports that you provide to us really require a willing suspension of disbelief. I believe she is as wrong then about the surge in Iraq as the MSM is wrong now about the economy. Wishcasting is not rational thinking.

    Comment by dscott — October 28, 2017 @ 11:47 am

  3. dscott, this is the same crap everyone in the swamp is peddling: it’s impossible to grow at 3 percent, aging workforce, blah-blah. These MAY be reasons why 4 percent would be tough, but not 3 percent. Never any mention of all the people on the sidelines who have been coming back into the workforce, or the fact that a lot of people are going to continue to work later in life, partially because they want to, partially because they need to, and partially because they’re not confident Social Security and Medicare won’t have a crackup.

    Comment by Tom — October 28, 2017 @ 2:03 pm

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.