November 29, 2017

3Q2017 Gross Domestic Product, 2nd Estimate: An Annualized 3.3 Percent, Up From Original Estimate of 3.0 Percent; Not As Positive As One Might Think

Filed under: Economy,Taxes & Government — Tom @ 7:00 am

This post may not be live on Wedneday because the (hopefully) final resolution of medical matters will be taking place. We’ll see.

Update, 8:25 a.m.: Surprise. I’m here live.

The first reading of GDP for the third quarter came in at an annualized 3.0 percent a month ago. Tomorrow’s reading appears to be headed a bit higher, but I’m having a hard time finding specifics:

  • As of late Tuesday, Bloomberg was only reporting that “The second print of third-quarter U.S. GDP on Wednesday may be revised up thanks to consumer spending and inventory accumulation.”
  • Moody’s is predicting an upward revision to 3.3 percent, but “the risks (of a different result from that) have shifted from the upside to the downside.”
  • Last-minute update: Found an AP item from Monday predicting 3.2 percent.

If there are other estimates out there, I couldn’t find them.

One other pre-release comment: There’s no way anyone can look at how poorly the economy performed last year and give the Obama administration any kind of credit for giving Donald Trump economic momentum going into his administration. In fact, I’d argue that without Trump’s election a year ago, we might have seen 4Q16 come in below 1 percent and 1Q17 go negative.

The report will be here at 8:30.

HERE IT IS (permanent link with tables): An improvement, but as will be explained later, there’s less here than meets the eye —

Real gross domestic product (GDP) increased at an annual rate of 3.3 percent in the third quarter of 2017, according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.1 percent.

The GDP estimate released today is based on more complete source data than were available for the ”advance” estimate issued last month. In the advance estimate, the increase in real GDP was 3.0 percent. With this second estimate for the third quarter, the general picture of economic growth remains the same; nonresidential fixed investment, state and local government spending, and private inventory investment were revised up from the prior estimate.

Real gross domestic income (GDI) increased 2.5 percent in the third quarter, compared with an increase of 2.3 percent (revised) in the second. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.9 percent in the third quarter, compared with an increase of 2.7 percent in the second quarter.

The increase in real GDP in the third quarter reflected positive contributions from PCE, private inventory investment, nonresidential fixed investment, and exports that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the third quarter reflected an acceleration in private inventory
investment, a downturn in imports, and smaller decreases in state and local government spending and in residential fixed investment that were partly offset by decelerations in PCE, in nonresidential fixed investment, and in exports.

Current-dollar GDP increased 5.5 percent, or $259.0 billion, in the third quarter to a level of $19,509.0 billion. In the second quarter, current-dollar GDP increased 4.1 percent, or $192.3 billion.

Corporate Profits

Profits from current production (corporate profits with inventory valuation adjustment and capital consumption adjustment) increased $91.6 billion in the third quarter, compared with an increase of $14.4 billion in the second quarter.

UPDATE: Here’s the detail chart for the past seven quarters:

GDPcomponentsThru3Q17at112917

My take on changes seen in this month’s revision and the changes from second quarter to third quarter is that I don’t think they’re healthy.

Health care spending’s contribution to GDP shot up from the second quarter to the third. That’s not helpful, especially GDP contributions from spending on all other services almost disappeared plummeted from 0.55 points to 0.15 points, with this month’s revision taking this quarter’s contribution down from 0.47 points to 0.15 points. Combine “all other” with “other services” above and you see a decline in GDP contribution from 0.93 points to 0.24 points.

These are not encouraging signs that consumers are backing up the optimism they’re expressing in surveys by actually buying everyday goods and services.

It is encouraging that the investment side improved a bit, and that imports are less of a drag on GDP than they have been. But, especially because it appears that fourth-quarter inventories are falling, a similar fourth-quarter performance in consumer spending other than health care will not yield an overall result above 3.0 percent.

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