April 27, 2018

1Q18 Gross Domestic Product (042718): An Annualized 2.3 Percent, Beating Expectations of 2.0 Percent or Less

Filed under: Economy,Taxes & Government — Tom @ 8:28 am

Predictions:

In the ADP conference call in early April, Mark Zandi at Moody’s explained the low first-quarter predictions as resulting from still-present “residual seasonality.” The idea is that the government is supposedly not fully reflecting seasonal factors in its first-quarter estimates and is therefore understating true GDP. I’ve haven’t been a fan of this line of reasoning since it first came up three years ago, but at least it’s consistent with the first-quarter excuse-making seen during the Obama era.

The report will be here at 8:30.

HERE IT IS (full report with tables): A bit of a beat, and if you buy the “residual seasonality” arguments, you should be impressed —

Real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the first quarter of 2018 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.9 percent.

The Bureau emphasized that the first-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 first quarter, based on more complete data, will be released on May 30, 2018.

The increase in real GDP in the first quarter reflected positive contributions from nonresidential fixed investment, personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased (table 2).

The deceleration in real GDP growth in the first quarter reflected decelerations in PCE, residential fixed investment, exports, and state and local government spending. These movements were partly offset by an upturn in private inventory investment. Imports, which are a subtraction in the calculation of GDP, decelerated.

Current-dollar GDP increased 4.3 percent, or $211.2 billion, in the first quarter to a level of $19.97 trillion. In the fourth quarter, current-dollar GDP increased 5.3 percent, or $253.5 billion (table 1 and table 3).

The price index for gross domestic purchases increased 2.8 percent in the first quarter, compared with an increase of 2.5 percent in the fourth quarter (table 4). The PCE price index increased 2.7 percent, the same increase as in the fourth quarter. Excluding food and energy prices, the PCE price index increased 2.5 percent, compared with an increase of 1.9 percent (appendix table A).

Personal Income (table 10)

Current-dollar personal income increased $182.1 billion in the first quarter, compared with an increase of $186.4 billion in the fourth quarter. Decelerations in personal interest income, rental income, and nonfarm proprietors’ income were largely offset by accelerations in wages and salaries and in government social benefits.

Personal current taxes decreased $40.1 billion in the first quarter compared with an increase of $50.1 billion in the fourth quarter.

Disposable personal income increased $222.1 billion, or 6.2 percent, in the first quarter, compared with an increase of $136.3 billion, or 3.8 percent, in the fourth quarter. Real disposable personal income increased 3.4 percent, compared with an increase of 1.1 percent.

Personal saving was $462.1 billion in the first quarter, compared with $379.8 billion in the fourth quarter. The personal saving rate — personal saving as a percentage of disposable personal income — was 3.1 percent in the first quarter, compared with 2.6 percent in the fourth quarter.

The 2017 Tax Cuts and Jobs Act includes provisions that impact the personal income statistics in the National Income and Product Accounts.

More shortly, after looking at the details.

UPDATE: Here’s the detail —

GDPcomponentsThru1Q18at042718

The low personal consumption contributions, especially in goods, may seem surprising, but they’re consistent with what the government has reported in its Personal Income and Outlays release through February.

I wanted to say that the reported GDP deflator of 2.8 percent is way overstated, but the Consumer Price Index went up 1.1 percent in the first quarter (4.5 percent annualized), so maybe that’s okay. But that’s not the case with the fourth quarter, when the deflator was 2.5 percent and CPI decreased by 0.1 percent.

The exports-imports turnaround from the fourth quarter is impressive, but the same kind of turnaround was seen from 4Q16 to 1Q17.

As to potential for upward revisions, I would guess that there might be a bit of improvement in PCE and some potential for the inventory change number to increase. Overall, the government may not have picked up all of the positive impact of the tax cuts passed in December, but we’ll just have to wait for future revisions to see if that’s the case. It’s hard to imagine that future revisions will be downward, but the government’s bean counters have surprised us before.

Overall, though, today’s news is okay but not great — unless you buy into the “residual seasonality” assertions. Those folks, if they’re consistent, would have to concede that today’s GDP news was pretty darned good.

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