1Q2017 Gross Domestic Product: Second Estimate

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In its second estimate of 1Q2017 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) lifted the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +1.16% (well above consensus expectations of 0.8%); that is up by 0.47 percentage point from the previous 1Q2017 estimate, but still barely more than half (-0.92 percentage point) 4Q2016’s +2.08%.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and net exports (NetX) -- contributed to 1Q growth. Government consumption expenditures (GCE) detracted from it. Additional details follow:

* Consumer spending grew at a meager 0.44% annualized rate, up 0.21 percentage point from the previous 1Q estimate but still down a significant 1.96% from 4Q2016. Strangely, nearly one-fourth of the gross positive revision (nominal dollars) were attributable to one line item: “Receipts from sales of goods and services by nonprofit institutions serving households” (e.g., churches and religious societies, sports and other clubs, trade unions and political parties). In fact, the upward revision to that line item ($13.6 billion) more than offset the downward revision to spending on healthcare services (-$12.0 billion).

* The previously reported near stall-out in inventory accumulations worsened slightly, to a -1.07% annual pace (a swing of -2.08% from 4Q2016).

* Although government spending was revised upward by 0.10 percentage point, it still contracted during 1Q, removing -0.20% from the headline.

* The good news continued to be commercial fixed investment, which was revised upward by +0.23% and is now adding +1.85% to the headline.

* Foreign trade was also revised upward slightly (+0.07%) to a +0.14% contribution to the headline number, up some +1.96% from 4Q2016.

* Real final sales of domestic product, the BEA's "bottom line" economic indicator that excludes the influence of inventories, was more than a full percent better than the headline at +2.23%, up 1.16% from 4Q2016’s +1.07% rate. 

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“If the U.S. economy is consumer driven,” wrote Consumer Metric Institute’s Rick Davis, “that driver appears to be seriously distracted. Normally U.S. consumer fear, uncertainty and doubt (FUD) is strictly a pre-election phenomenon. This time around FUD seems to have lingered far longer than normal.”

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.