2Q2017 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2017 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 +3.04% (well above consensus expectations of 2.6%), up +0.48 percentage point (PP) from the “advance” estimate and +1.80 PP from the prior quarter.

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. As for details:

* Consumer spending was revised up to +2.27% (+0.34 PP from the previous 2Q estimate and +0.95 PP from 1Q); the biggest positive revisions were in motor vehicles and parts (+$5.7 billion, nominal), other (unspecified) services (+$10.9 billion), and final consumption expenditures of nonprofit institutions serving households (+$6.5 billion) – which, as we have observed in the past, have no observable market price. Partially offsetting those additions was a $19.1 billion drop (nominal) in health care expenditures.

* Inventories continued to be essentially neutral (+0.02%).

* Growth in commercial fixed investment was revised upward (to +0.58%), concentrated primarily in software (+$5.1 billion); residential construction contracted (-$0.8 billion).

* Governmental spending was trimmed back into marginal contraction (-0.05%) -- mainly at the state and local levels (-$8.0 billion).

* Growth rates for both exports (+0.45%) and imports (-0.23%) moderated. 

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“Per this report,” wrote Consumer Metric Institute’s Rick Davis, “the US economy is in a very pleasant zone -- slightly over the Goldilocks +3% number that is neither too cool nor too hot. Consumer spending has rebounded into normal ranges. It would appear that U.S. consumers have shrugged off the unrelenting domestic political drama and moved on to more normal spending patterns -- although they are dipping into savings to do so. In short, this report is certainly good enough to provide the Federal Reserve with the data needed to justify moving forward with their ‘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.