March 28, 2018

Well, Well: 4Q17 GDP (032818) Revised up to an Annualized 2.9 Percent, Up From 2.5 Percent; Three-Quarter Growth Rate Annualized Is Just Above 3.0 Percent

Filed under: Economy,Taxes & Government — Tom @ 1:48 pm

I missed this, expecting it would come later in the week, but here it is now, from the government’s Bureau of Economic Analysis (full report with tables):

Real gross domestic product (GDP) increased at an annual rate of 2.9 percent in the fourth quarter of 2017, according to the “third” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.2 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 2.5 percent.

With this third estimate for the fourth quarter, the general picture of economic growth remains the same; personal consumption expenditures (PCE) and private inventory investment were revised up.

Real gross domestic income (GDI) increased 0.9 percent in the fourth quarter, compared with an increase of 2.4 percent in the third. …

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

The deceleration in real GDP growth in the fourth quarter reflected a downturn in private inventory investment that was partly offset by accelerations in PCE, exports, state and local government spending, nonresidential fixed investment, and federal government spending, and an upturn in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, turned up.

Current-dollar GDP increased 5.3 percent, or $253.5 billion, in the fourth quarter to a level of $19,754.1 billion. In the third quarter, current-dollar GDP increased 5.3 percent, or $250.6 billion.

The price index for gross domestic purchases increased 2.5 percent in the fourth quarter, compared with an increase of 1.7 percent in the third quarter (table 4). The PCE price index increased 2.7 percent, compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index increased 1.9 percent, compared with an increase of 1.3 percent.

… The upward revision to the percent change in real GDP reflected upward revisions to PCE and private inventory investment.

Real GDP increased 2.3 percent in 2017 (that is, from the 2016 annual level to the 2017 annual level), compared with an increase of 1.5 percent in 2016.

The increase in real GDP in 2017 primarily reflected positive contributions from PCE, nonresidential fixed investment, and exports. These contributions were partly offset by a decline in private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP from 2016 to 2017 reflected upturns in nonresidential fixed investment and in exports and a smaller decrease in private inventory investment. These movements were partly offset by decelerations in residential fixed investment and in state and local government spending. Imports, which are a subtraction in the calculation of GDP, accelerated.

During 2017 (measured from the fourth quarter of 2016 to the fourth quarter of 2017), real GDP increased 2.6 percent, compared with an increase of 1.8 percent during 2016. …

Corporate Profits

Profits from current production (corporate profits with inventory valuation adjustment and capital consumption adjustment) decreased $1.1 billion in the fourth quarter, in contrast to an increase of $90.2 billion in the third quarter. …

In 2017, profits from current production increased $91.2 billion, in contrast to a decrease of $44.0 billion in 2016. Profits of domestic financial corporations increased $15.7 billion, in contrast to a decrease of $2.0 billion. Profits of domestic nonfinancial corporations increased $37.4 billion, in contrast
to a decrease of $51.7 billion. The rest-of-the-world component of profits increased $38.0 billion, compared with an increase of $9.8 billion.

Yahoo’s Economic Calendar predicted 2.6 percent. Zero Hedge says that consensus estimates were at 2.7 percent.

Concerning corporate profits, their fourth-quarter flatness indicates that the tax cut came just in time.

As to the past three quarters, growth in raw terms has averaged 3.07 percent (3.1 plus 3.2 plus 2.9, divided by 3). For those who want exact answers here they are (GDP data is seasonally adjusted):

$17,286.5 — Fourth quarter real GDP (trillions)
$16,903.2 — First quarter real GDP
1.0226762 — Growth factor
2.26762% — Growth
3.02349% — Annualized growth (Growth x 4/3)
3.03486% — Annualized growth (4 quarters at compound growth rate during first 3 quarters)

Defying the naysayers, the Trump economy has (barely) achieved his stated 3 percent minimum growth goal during the past three quarters. He has said he expects higher growth rates in the future. Current first-quarter estimates aren’t pointing in that direction, but we’ll see. This is the best three-quarter stretch in raw terms since two three-quarter periods which were better from Q2-2014 through Q1-2015 (12.8 and 10.4 points). Q4-2011 through Q2-2012 matched the past three quarters 9.2-point total. Before that, Q4-2009 through Q2-2010 was a bit stronger coming out of the recession (9.5 points).

More in a bit when I update the components chart.

UPDATE: HERE IT IS —

GDPcomponentsThru4Q17at032818.jpg

Increase in consumption and a small inventory decline almost totally explain the change from the second estimate to today’s third estimate.

Comparing the third and fourth quarters:

  • The increase in consumption almost doubled.
  • The increase in fixed investment excluding inventories roughly tripled, which bodes well for the long-term.
  • Net exports went from being a contributor to a huge decrement.

Looking ahead, current second quarter estimates from the most visible predictors include:

Another wild card is the comprehensive GDP revisions coming out in June with the final second-quarter release. It will be interesting to see whether prior-year numbers change much, and in what direction.

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1 Comment

  1. [...] The “skeptics” to whom Rugaber and Woodward referred also believe that consistent 3 percent growth is unsustainable. During the past three quarters, using the government’s rounded percentages, the economy has grown by an annualized 3.07 percent (the average of the second quarter’s 3.1 percent, the third quarter’s 3.2 percent, and the fourth quarter’s revised 2.9 percent). The exact result, based on dividing the dollar amount of fourth quarter GDP by first-quarter GDP, is 3.03 percent. [...]

    Pingback by BizzyBlog — March 29, 2018 @ 1:32 pm

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