1Q2016 Gross Domestic Product: Secondary (Preliminary) Estimate

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In its second (“preliminary”) estimate of 1Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +0.82%, up 0.28 percentage point from the initial estimate but still considerably lower 4Q2015’s +1.38%. The revised 1Q rate was below consensus expectations of +0.9%. Moreover, 1Q2016’s year-over-year growth rate was +2.03%, not significantly different from 4Q2016’s +1.98%.

Overall, groupings of GDP components show that personal consumption expenditures (PCE) and government consumption expenditures (GCE) contributed to 1Q growth. Private domestic investment (PDI) and net exports (NetX) detracted from it.

Roughly half of the upward revision came from inventory adjustments, which were reported to have contracted at a -0.20% SAAR -- an improvement of +0.13 percentage point from the previously reported -0.33% and about the same as 4Q2015's -0.22%. None of the other line items were revised by more than ±0.06% despite revisions to private domestic investment in residential and nonresidential structures (a combined +$5.5 billion) exceeding the change to inventories (+$4.5 billion).

The BEA’s Real Final Sales of Domestic Product, which strips out the impact of inventory fluctuations, improved +0.15 percentage point, to +1.02%; that was 0.58% below 4Q2015’s estimate. 

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Consumer Metrics Institute summarized the GDP report as follows:

Once again BEA's report did not show a robust economy. The minor revisions posted in this report were not statistically significant, and the past three quarters continue to show a slow-motion slide towards economic stagnation.

From our perspective the key items in this report are:

-- Private commercial investment remains in contraction.

-- Consumer spending remains weak, repeating a dip very similar to one recorded in 1Q2015 (even though the numbers are reported to be already "seasonally adjusted"). Non-discretionary spending on health care and housing provided most of the [quarter-over-quarter] growth in consumer services spending.

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.