3Q2016 Gross Domestic Product: Second Estimate

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In its second estimate of 3Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) “tinkered around the edges” when revising growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +3.15% (in line with consensus expectations of 3.1%), up 0.24 percentage point from the previous 3Q estimate and also up +1.73 percentage points from 2Q2016.

All groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- contributed to 3Q growth.

Most of the improvement in the revised headline number came from a +0.42% bump to consumer spending. Spending on consumer goods was revised upward by +0.26%, and spending on consumer services was reported to be +0.16% better than previously thought. However, both of those estimates remain below the levels seen in 2Q (a combined -0.99% compared to 2Q). Moreover, the inventory growth rate was revised downward by -0.12% to +0.49%. Revisions to the other line items were of little consequence. 

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Recapping the report: 

-- Growth in consumer spending took a major quarter-to-quarter hit (down nearly a full percentage point).

-- Commercial fixed investment remains weak, and has now recorded four consecutive quarterly contractions.

-- Most of the QoQ improvements (as opposed to the 3Q revision) in the contributions to the headline number came from two especially noisy line items: inventories and exports. The QoQ swing in those two line items in aggregate represent +2.62% of the headline number. When the QoQ +0.35% increase in governmental spending is included, it could be argued that the vast majority of the 3.15% headline number is from either noisy data or simply borrowed from the next quarter.  

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.