3Q2015 Gross Domestic Product: Second (Preliminary) Estimate

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In its second (“preliminary”) estimate of 3Q2015 U.S. gross domestic product (GDP), the Bureau of Economic Analysis (BEA) reported that the economy was growing at a seasonally adjusted and annualized rate of 2.07%, up from the original 1.49% rate reported in October, but still significantly slower than 2Q’s 3.92%. The consensus among economists was for a growth rate of +2.1%. A better metric involves comparing growth to the same quarter one year ago. For 3Q2015, the year-over-year growth was 2.17% -- down from 2Q's 2.72% YoY growth.

Groupings of GDP components show that personal consumption expenditures (PCE) and government consumption expenditures (GCE) contributed to 3Q growth whereas private domestic investment (PDI) and net exports (NetX) detracted from it. As the graph above also indicates, this report's headline number was buoyed almost entirely by a sharp revision in inventories (part of PDI). All of the other line items were either essentially unchanged or weaker. Although inventories were reported to have contracted at a 0.59% annualized rate, that is a 0.85 percentage point improvement from the -1.44% reported in the previous (advance) estimate. Because of the general weakness in the non-inventory line items, 3Q’s real final sales of domestic product (which excludes the impact of inventory changes) was trimmed 0.27 percentage point to a +2.66% growth rate.

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Consumer activity once again contributed the vast bulk of the headline number (2.05 percentage points), although that contribution was 0.14 percentage point less than in the previous 3Q estimate; health care was once more the single largest line item, comprising one-fifth of PCE. Fixed commercial investments and governmental spending were essentially unchanged, while exports and imports weakened materially from the previous estimate.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.