1Q2018 Gross Domestic Product: Third Estimate

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In its third and final estimate of 1Q2018 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) reported that the U.S. economy was growing at a +2.00% seasonally adjusted and annualized rate (+2.2% expected), down 0.17 percentage point (PP) from the previous estimate (“1Qv2”) and 0.88PP lower than 4Q2017.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed to 1Q growth. Net exports (NetX) detracted from it.

The lowering of the headline number resulted from downward revisions to contributions from consumer spending (-0.11PP; goods: +0.04 and services: -0.15PP) and net exports (-0.12PP; exports: -0.07PP and imports: -0.05PP). Nonresidential fixed investment (+0.18PP -- nearly half from intellectual property products) was almost offset by the change in private inventories (-0.14PP).

Real final sales of domestic product (which exclude inventories) were revised slightly lower (-0.03PP from 1Qv2, to +2.03%) and remained 1.40PP below 4Q2017’s estimate. On a brighter note, gross domestic income (GDI) -- an alternative measure of economic growth -- increased at a 3.6% rate, up from the 2.8% pace reported in 1Qv2. 

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Commentary 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 -2.15% 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 headline from the report should have read: ‘Consumer spending on goods continued to contract, while consumer spending on services was revised downward yet again,’” Davis concluded. “If consumers are the driving force for the U.S. economy, a report like this should be raising major caution flags.”

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.