3Q2018 Gross Domestic Product: Second Estimate

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In its second estimate of 3Q2018 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) left the growth rate of the U.S. economy virtually unchanged at a seasonally adjusted and annualized rate (SAAR) of +3.50% (in line with consensus expectations), up 0.01 percentage point (PP) from the “advance” estimate (“3Qv1”) but -0.65PP from 2Q2018.

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 negligible improvement in the 3Qv2 headline number masks a noteworthy shift in the composition of that growth -- from consumer spending to even more inventory growth. The contribution from consumer spending on goods and services weakened by 0.24PP, to a lower growth rate than in 2Q. Nearly offsetting that was an upward revision to inventories (+0.20PP), which are now reported to be growing at a +2.27% annualized rate. As a consequence, the BEA revised real final sales of domestic product downward by 0.20PP, to -4.09PP compared to 2Q.

The growth in commercial fixed investment was revised upward (+0.29PP), while government spending and net exports were trimmed by a combined -0.25PP. Foreign trade is now removing 1.91% from the headline number, off 3.13PP from 2Q.

Again it is worth noting that the headline number has been propped up by the most fickle of the BEA's data items: inventories; which added +3.44PP more to the 3Q headline than in 2Q. 

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The key number from this report is the BEA's real final sales of domestic product which is now reported to be down by 4.09PP from 2Q, remarked Consumer Metric Institute’s Rick Davis. “This revision simply reinforced [3Qv1’s] story -- that the growth rate for consumer spending was weakening, with inventories growing as a consequence. Global economics and politics also are not helping, with trade now removing another 3% from the headline quarter over quarter.”

“In a sense this report was even more of the same, an economy clearly in transition from the happy news reported for 2Q2018,” Davis concluded.

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.