2Q2017 Gross Domestic Product: First (“Advance”) Estimate

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In its advance (first) estimate of 2Q2017 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) pegged growth of the U.S. economy at a seasonally adjusted and annualized rate (SAAR) of +2.56% (in line with expectations), up 1.14 percentage points (PP) from 1Q2017’s +1.24%. The 1Q rate was revised lower (from +1.42% reported in June) as part of annual revisions going back to 1Q2014.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 2Q2017 was +2.08% relative to 2Q2016; that was marginally higher than 1Q2017’s +2.00% relative to 1Q2016.

All four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- contributed to 2Q growth. 

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Consumer spending accelerated in 2Q2017 (+1.93%), up 1.18 PP from 1Q and very similar to 4Q2016. The inventory contraction of 1Q essentially disappeared (-0.02%), but so too did much of the previous robust growth in commercial fixed investment (+0.36%, down from 1.27% in 1Q). Governmental spending rose slightly (+0.12%), reversing the prior quarter's contraction; and the growth rates for both exports (+0.48%) and imports (-0.31%) moderated.

At +2.58%, real final sales of domestic product -- the BEA's "bottom line" indicator that excludes the influence of inventories -- was nearly unchanged from the revised 1Q estimate.

For 2Q the BEA assumed an effective annualized deflator of 1.01%; inflation recorded concurrently by the Bureau of Labor Statistics (BLS) in its CPI-U index was only 0.06%. Overestimating inflation results in pessimistic growth rates; had the BEA's "nominal" data been deflated using CPI-U inflation information, the headline growth number would have been a materially higher +3.53%.

Although it is too soon to know for sure whether this somewhat more robust growth has any staying power, Consumer Metric Institute’s Rick Davis believes “this report should provide the Federal Reserve with the data needed to justify moving forward with their [monetary-policy] ‘normalization’ campaign.”

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.