3Q2017 Gross Domestic Product: Third Estimate

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In its third and final estimate of 3Q2017 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) reported that the U.S. economy was growing at a seasonally adjusted and annualized rate (SAAR) of +3.16% (+3.3% expected), down 0.14 percentage point (PP) from the previous estimate (“3Qv2”) and up 0.10 PP from 2Q.

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 3Qv2 reflect higher consumer goods spending, less spending on consumer services, offsetting minor adjustments to commercial fixed investment and inventory growth, slightly more governmental spending and slightly weaker foreign trade.

For the most part, the revisions in 3Qv3 were little more than statistical noise. Among the details: 

* The combined consumer contribution to the headline number was +1.49%, down 0.75% from 2Q. Expenditures for goods were slightly stronger at +0.97% (but down 0.19% from 2Q). Spending on services dropped 0.19% to +0.52% (down 0.56% -- more than halved -- from 2Q).

* The headline contribution from commercial private fixed investments increased slightly to +0.40%, up 0.01% from 3Qv2 but still down -0.13% from 2Q. That continued to reflect a contraction in residential construction.

* Inventory growth continued to provide a material boost to the headline number (+0.79%). This was a 0.67% improvement from 2Q.

* Governmental spending was reported to be growing at a +0.12% rate. This was a 0.15% improvement from 2Q and is boosted somewhat by the annual fiscal-year-end spending binge.

* In aggregate, foreign trade added 0.36% to the headline number. Exports contributed 0.25%, down 0.17% from 2Q. Imports added 0.11%, up 0.33% from 2Q.

* Real final sales of domestic product grew at an annualized 2.37%, down -0.57% from 2Q. This is the BEA's "bottom line" measurement of the economy and excludes the inventory data. 

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Commentary from Consumer Metric Institute’s Rick Davis:

-- Inventory growth provided a quarter of the headline number. As mentioned before, inventory growth is noisy and mean reverting. What it gives in this quarter it will take away somewhere down the road.

-- Despite rising and inescapable healthcare costs, the growth in spending on consumer services was the lowest since 2Q2013. The consumer services sector has been a major driving factor in this economy over the past decade, and that growth may very well have maxed out.

-- Household disposable income remains miserable. There is still no material growth, and savings rates remains at the lowest levels since the very bottom of the Great Recession. This means a significant portion of the already softening consumer spending came from savings, not pay checks.

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.