October 27, 2018

3Q18 Gross Domestic Product, Advance Estimate (102618): An Annualized 3.5 Percent

Filed under: Economy,Taxes & Government — Tom @ 10:30 am

From the government’s Bureau of Economic Analysis (PDF with tables):

Real gross domestic product (GDP) increased at an annual rate of 3.5 percent in the third quarter of 2018 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.2 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 28, 2018.

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

The deceleration in real GDP growth in the third quarter reflected a downturn in exports and a deceleration in nonresidential fixed investment. Imports increased in the third quarter after decreasing in the second. These movements were partly offset by an upturn in private inventory investment.

Current dollar GDP increased 4.9 percent, or $247.1 billion, in the third quarter to a level of $20.66 trillion. In the second quarter, current-dollar GDP increased 7.6 percent, or $370.9 billion (table 1 and table 3).

The price index for gross domestic purchases increased 1.7 percent in the third quarter, compared with an increase of 2.4 percent in the second quarter (table 4). The PCE price index increased 1.6 percent, compared with an increase of 2.0 percent. Excluding food and energy prices, the PCE price index increased 1.6 percent, compared with an increase of 2.1 percent.

The 3.5 percent is lower than the 3.9 percent the Atlanta Fed was estimating mid-month (unusually, it wasn’t updated on October 25 as promised). On the other hand, yesterday’s advance result was higher than Moody’s estimate of 3.3 percent. And at IHS Macro Advisers, the sum of the three monthly GDP growth figures averages out to 3.5 percent.

Here are the major components:


Obviously, the inventory change dominates the result — and since it probably won’t repeated in the fourth quarter, that might be a cause to start worrying about what that result will be.

So is drop in nonresidential fixed investment, as well as the continued negative contributions of residential fixed investment. The former seems somewhat likely to get upwardly revised in the government’s next two estimates.

I expected the Wall Street Journal and Investor’s Business Daily to jump on the negative import-export results. But only the Journal did:

Can economic growth from tax reform and deregulation stand up to the headwinds from higher interest rates, tariffs and perhaps a Democratic Congress? That’s the question we take away from Friday’s strong but somewhat disappointing report on economic growth in the third quarter. The answer isn’t obvious.

We’ll have to agree that the Journal’s question is the fundamental one — though the Democratic Congress is a far bigger threat, at least in the short-term, than the current back-and-forth on tariffs.


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