2Q2018 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2018 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) nudged the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +4.23% (roughly in line with consensus expectations), up 0.16 percentage point (PP) from the “advance” estimate (“2Qv1”) and +2.01PP from 1Q2018.

All four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- now show as having contributed to 2Q growth.

Overall, the revisions were quite modest. The growth rate for consumer spending for goods was revised lower by 0.12PP; services: -0.03PP. The contraction of inventories moderated slightly (+0.03PP) to -0.97%, while the growth rate in fixed investment rose by 0.13PP to +1.07%. The growth rate for imports improved +0.13PP (to +0.07%).

Real final sales of domestic product (which exclude inventories) were revised higher (+0.13PP from 2Qv1, to +5.20%), 3.25PP above the 1Q2018 estimate. 

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“Although the revisions in this report can be characterized as statistical noise, a headline number with +4.23% growth is outstanding under any circumstance,” remarked Consumer Metric Institute’s Rick Davis. “The stimulus expected from the Tax Cuts and Jobs Act of 2017 seems to be materializing. And the BEA's own ‘bottom line’ real final sales growth was reported to be +5.20% -- a number that some might consider to be unsustainably high or an early indication of an overheating economy.

“As we have mentioned before, this kind of growth signals that the Fed's accommodations over the past decade are certainly no longer needed. And if the growth persists in this range for another quarter or two, significant tightening might be in order.”

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.