1Q2018 Gross Domestic Product: Second Estimate

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In its second estimate of 1Q2018 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 +2.17% (roughly in line with consensus expectations), down 0.15 percentage point (PP) from the “advance” estimate (“1Qv1”) and -0.71PP from 4Q2017.

All four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- contributed to 1Q growth.

Net exports dominated downward revisions to the “1Qv2” headline, with a 0.08PP reduction in exports and an accompanying -0.04PP in imports. The remaining changes were quite modest: Increased consumer spending on goods (+0.11PP) was more than offset by a reduction in spending on services (-0.13PP). Similarly, a cutback in private inventories (-0.30PP) more than negated a 0.29PP bump in nonresidential fixed investment (especially intellectual property products).

Real final sales of domestic product (which exclude inventories) were revised slightly higher (+0.15PP from 1Qv1, to +2.04%) but remained 1.37PP below 4Q2017’s estimate. 

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Takeaways from Consumer Metric Institute’s Rick Davis included:

-- Consumer spending for goods was still reported to be contracting during the quarter, and the reported growth in services spending weakened materially.

-- The overall annualized growth rate for consumer spending dropped over -2% on a quarter-to-quarter basis.

-- Although household disposable income improved quarter-to-quarter (most likely due to the reduced withholding rates in the "Tax Cuts and Jobs Act of 2017"), most of that improvement went into increased savings.

“The US economy was probably somewhat cooler than the BEA's already tepid headline number might suggest,” Davis concluded. “Downward trending headline growth rates slightly above 2% is not the stuff that economic dreams are made on.”

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.