4Q2017 Gross Domestic Product: Second Estimate

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In its second estimate of 4Q2017 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) shaved the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.53% (in line with consensus expectations), down 0.02 percentage point (PP) from the “advance” estimate and -0.63PP from the prior quarter.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed to 4Q growth. Net exports (NetX) detracted from it.

This report contains no material revisions. The largest change consisted of a 0.15PP reduction in spending on consumer goods and a corresponding increase in spending on services. Otherwise, no “tier 3” line item in the report changed by more than ±0.03PP (“tier 1” is the headline number; “tier 2” corresponds to the PCE, PDI, NetX and GCE aggregates).

Real final sales of domestic product (which exclude inventories) were revised slightly higher (+0.02PP from the previous estimate and +0.86PP from 3Q), to +3.23%. 

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“The revisions in this report are arguably nothing more than statistical noise,” Consumer Metric Institute’s Rick Davis observed. “In fact, the line-by-line revisions in this report are among the smallest ever recorded.

“Despite the current happy unemployment numbers, household disposable income and savings rates remain weak. The savings rate is at the same level last seen at the brink of the Great Recession, and disposable income has grown less than 7% in aggregate over the past 10 years.

“Presumably the stagnant household income numbers will get a boost in 1&2Q2018 as a result of the Tax Cuts and Jobs Act of 2017. The withholding changes should have been rolled out during 1Q and will be in effect for the entire 2Q.

“It will be interesting to see how soon the improved take-home pay translates into the highly anticipated boost in consumer spending,” Davis concluded. “Recent history suggests that the household savings rate will be the initial beneficiary of the higher pay checks -- at least during the quarter or more that household budgets may need to recover some breathing room.”

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.