3Q2017 Gross Domestic Product: Second Estimate

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In its second estimate of 3Q2017 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 +3.30% (in line with consensus expectations), up +0.32 percentage point (PP) from the “advance” estimate and +0.24 PP from the prior quarter.

In the latest report, all four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- contributed to 3Q growth. The changes from the prior 3Q estimate reflect higher commercial fixed investment, higher inventory growth, more government spending and improved foreign trade. Consumer spending was essentially neutral. As for details:

-- Consumers’ contribution to the headline number was +1.62%, down 0.62 PP from 2Q. Spending on goods was slightly weaker at +0.89% (down 0.27 PP from 2Q); spending on services was essentially static at +0.71% (down 0.38 PP from 2Q).

-- The headline contribution from commercial private fixed investments increased to +0.39%, up 0.14 PP from the previous estimate but still down -0.14% from the prior quarter. That continued to reflect a contraction in residential construction.

-- Inventory growth provided a material boost to the headline number (+0.80%) -- a 0.68 PP improvement from 2Q.

-- Governmental spending was revised to show a +0.07% growth rate; that was a +0.10 PP improvement from 2Q.

-- Trade added 0.44% to 3Q’s headline. Exports contributed 0.27% (-0.15 PP from 2Q); Imports added +0.17% (+0.39 PP from 2Q). 

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“The improved headline growth rate comes from upward revisions to commercial fixed investment and inventories. Consumer activity did not materially impact this revision,” concluded Consumer Metric Institute’s Rick Davis. “A happy headline number that results from inventory buildups and consumer spending from diminished savings merits at least some caution, particularly whilst listening to the ongoing ‘growing economy’ narrative that fully anticipates a banner holiday spending season.”

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.