3Q2015 Gross Domestic Product: Third (Final) Estimate

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Changes to the third (“final”) estimate of 3Q2015 U.S. gross domestic product (GDP) were minimal and likely statistically non-significant. The Bureau of Economic Analysis (BEA) reported that the economy grew at a seasonally adjusted and annualized rate of 1.99%, down 0.08 percentage point from the previous estimate of 2.07% released in November; that rate was also significantly slower than 2Q’s 3.92%. The revised 3Q growth rate was in line with consensus expectations. A better metric involves comparing growth to the same quarter one year earlier. For 3Q2015, the year-over-year growth was 2.15% -- 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.

The largest changes in this report again involved the typically noisy inventory data; most other line items were essentially unchanged. Inventories were reported to have been contracting at a -0.71% annualized rate, a 0.12 percentage point deterioration from the -0.59% reported in November. The BEA’s real final sales of domestic product, which excludes the impact of inventories, was actually revised upward by 0.04 percentage point for 3Q, to a +2.70% growth rate. 

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Consumer activity once again contributed the vast bulk of the headline number (providing +2.04% in total), although that contribution was minimally less than in the previous estimate (down -0.01% in aggregate). Fixed commercial investments and governmental spending were both slightly improved, while exports and imports both weakened slightly from the previous estimate.

If there are any "take-aways" from this report, they might be the following:

-- In general, the economic growth provided by consumer spending is reported to be softening -- although the data on consumer spending for services has arguably become less reliable as a direct consequence of Obamacare.

-- The quarter-to-quarter increase in the household savings rate (to 5.2%) goes a long ways towards explaining the ongoing weak retail sales. Household monies no longer being spent at the gasoline pump are simply being saved. This implies that households are not particularly confident when looking forward.

-- Once again the contribution of exports to the headline number is a mere one-sixth what it was in the second quarter. The soaring dollar and plunging global economy have likely caught up with U.S. exporters. In coming quarters we may look favorably back on a time when exports provided any growth at all.

-- The core domestic economy seems to be transitioning to (at least) slower growth, with exports leading the way.

-- The arguably high deflators utilized for this report (GDP deflator of +1.30% versus 3Q CPI-U of -0.37%) may have skewed the headline number downward. For this reason alone it is possible that the real economy may have been performing better than these numbers would lead us to believe.

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.