June 28, 2018

1Q18 Gross Domestic Product, 3rd Estimate (062718): An Annualized 2.0 Percent, Down From 2.2 Percent in May

Filed under: Economy,Taxes & Government — Tom @ 8:59 am

From the Bureau of Economic Analysis (full text link with tables):

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2018 (table 1), according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.9 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 2.2 percent. With this third estimate for the first quarter, the general picture of economic growth remains the same; private inventory investment and personal consumption expenditures (PCE) were revised down.

Real GDP: Percent Change from Preceding Quarter

Real gross domestic income (GDI) increased 3.6 percent in the first quarter, compared with an increase of 1.0 percent in the fourth quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.8 percent in the first quarter, compared with an increase of 2.0 percent in the fourth quarter (table 1).

The increase in real GDP in the first quarter reflected positive contributions from nonresidential fixed investment, PCE, exports, federal government spending, and state and local government spending that were partly offset by negative contributions from residential fixed investment and private inventory investment. 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, exports, state and local government spending, and federal government spending and a downturn in residential fixed investment. These movements were partly offset by a smaller decrease in private inventory investment and a larger increase in nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, decelerated.

Current-dollar GDP increased 4.2 percent, or $206.0 billion, in the first quarter to a level of $19.96 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 2.7 percent in the first quarter, compared with an increase of 2.5 percent in the fourth quarter (table 4). The PCE price index increased 2.5 percent, compared with an increase of 2.7 percent. Excluding food and energy prices, the PCE price index increased 2.3 percent, compared with an increase of 1.9 percent (appendix table A).

Updates to GDP

The percent change in real GDP was revised down 0.2 percentage point from the second estimate, reflecting downward revisions to private inventory investment, PCE, and exports that were partly offset by an upward revision to nonresidential fixed investment. Imports were revised up. For more information, see the Technical Note. A detailed “Key Source Data and Assumptions” file is also posted for each release. For information on updates to GDP, see the “Additional Information” section that follows.

I’ll have the components analysis shortly.

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UPDATE: Here it is —

GDPcomponentsThru1Q18at062718

The reported 0.30-point drop from the first reading to the third isn’t helpful, but the highlighted items point to why the news mostly not as bad as it looks, and appears to bode well for future quarters:

  • If you’re going to pick a component for spending to be flat, it would be health care, where spending has spiraled out of control for years. At the consumer level, it’s taken away from spending on more tangible, everyday items.
  • The government found an additional half-point in fixed nonresidential investment’s contribution to GDP from the first reading to the third. The 1.28-point contribution is the highest quarterly figure in 14 quarters (1.31 points in 3Q14). Only four quarters since the beginning of 2006 have had higher contributions. This performance is consistent with the idea that companies are taking advantage of the tax cuts to invest in productivity-enhancing capabilities. Quarterly fixed nonresidential’s contribution averaged only 0.50 points in the 30 quarters from the recession’s end to the end of 2016.
  • The inventory change figure’s 0.44-point decline from the first reading to the third likely means that the second quarter’s positive contribution will be pretty significant.
  • The worsening figures in net exports seem to reflect flattening economic growth in key economies around the world, which is clearly not helpful.

Next month’s GDP report, besides being the first reading for 2Q18, will also have a comprehensive revision to previous quarters and years, and may end up revising certain items going all the way back to the 1930s.

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