3Q2016 Gross Domestic Product: Third Estimate

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In its third estimate of 3Q2016 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 +3.53% -- up +0.38 percentage point from the second estimate, and up +2.11% from 2Q2016. On a year-over-year basis, which should eliminate any residual seasonality distortions, GDP was up 1.65% from 3Q2015. On that basis, growth in 3Q2016 improved by 0.38 percentage point compared to 2Q.

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.

Improvement in the headline number (compared to the previous 3Q estimate) was broadly based: +0.14% came from higher consumer spending, +0.17% from more fixed investment spending, and +0.09 from additional governmental spending. None of the other changes were material, with the normally noisy inventory and import numbers completely unchanged. 

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Among the notable items in the report:

-- The headline contribution from consumer expenditures for goods increased to a +0.77% growth rate (although it is still down a material -0.74% from 2Q2016).

-- The contribution to the headline from consumer spending on services improved to +1.26% (which also remains down -0.11% from the prior quarter). The combined consumer contribution to the headline number was +2.03%, down a significant -0.85% from 2Q.

-- The headline contribution from commercial private fixed investments was revised to a positive +0.02, breaking a three-quarter string of fixed investment contraction.

-- The contribution from inventories was unchanged, although still up a dramatic +1.65% from 2Q -- after a string of five consecutive quarters of contraction.

-- The positive headline contribution from governmental spending improved by +0.09% to +0.14%. This remained up an historically large +0.44% from the prior quarter, and it was entirely in Federal spending (state and local spending was still reported to be contracting). This momentary growth was almost certainly due to increased Federal fiscal year-end spending -- a recurring annual phenomenon that is accompanied by an offsetting fourth calendar quarter (first fiscal quarter) reversal of that growth.

-- The contribution to the headline number from exports softened slightly to +1.16% (down -0.02% in this revision but up +0.95% from the prior quarter).

-- Imports subtracted -0.31% from the headline number, unchanged in this revision but down -0.28% from the prior quarter.

-- The "real final sales of domestic product" was revised upward +0.38% to +3.04%, up a material +0.46% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the reported inventory growth.  

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.