3Q2018 Gross Domestic Product: First (“Advance”) Estimate

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In its advance (first) estimate of 3Q2018 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) pegged growth of the U.S. economy at a seasonally adjusted and annualized rate (SAAR) of +3.50% (3.3% expected), down 0.65 percentage point (PP) from 2Q2018’s +4.15%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 3Q2018 was 3.04% higher than in 2Q2017; that growth rate was slightly faster (+0.17PP) than 2Q2018’s +2.87% relative to 2Q2017.

Three groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed to 3Q growth. Net exports (NetX) detracted from growth.

The BEA’s real final sales of domestic product growth, which excludes the effect of inventories, tumbled to +1.42%, down by a substantial 3.91PP from 2Q. 

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“After last quarter's happy news, this report is somewhat sobering,” wrote Consumer Metric Institute’s Rick Davis. “The headline still looks good, but a wild swing in inventories has masked material deterioration in private fixed investments (in both commercial and residential construction) and foreign trade.”

“This report is very different from the good news and solid numbers reported for 2Q2018,” Davis concluded, adding 3Q “certainly looks more like an economy in transition than what was reported for 2Q. And we are always a little nervous when inventory growth is providing more than half of the headline number.”

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.