1Q2019 Gross Domestic Product: Third Estimate

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In its third estimate of 1Q2019 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 +3.12% (+3.1% expected), up 0.06 percentage point (PP) from the second estimate (“1Qv2”) and +0.95PP from 4Q2018.

As in 1Qv1&2, 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. Although the headline number was essentially unchanged in 1Qv3, more material shifts occurred in:

* Consumer spending on goods -- revised from contraction to expansion;
* Consumer spending on services -- growth was cut nearly in half; and
* Fixed investment -- especially in the non-residential and intellectual property products line items -- was increased by more than one-third above the 1Qv2 rate.

A modest reduction (-0.05PP from 1Qv2) in the contribution of private inventories bumped real 1Q final sales of domestic product (which exclude inventories) slightly higher compared to 1Qv2. Moreover, the final 1Q RFSDP estimate of +2.57% was 0.51PP above the 4Q2018 estimate. 

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The key takeaways from the 1Qv3 report are as follows, according to Consumer Metric Institute’s Rick Davis:

-- Although the headline number was largely unchanged, this report shifted a material portion of that growth from the consumer sector to commercial fixed investment.

-- In the 43 quarters since 2Q2008 the cumulative annualized growth rate for real per-capita disposable income has been a dismal 1.27%.

-- The BEA's headline number was more than doubled by an inflation rate that was materially at odds with the inflation recorded by the Bureau of Labor Statistics.

-- Happily for policy makers, this revision left the headline number (for the moment) in the "Goldilocks" zone of economic growth. But if the New York Fed's "NowCast" and/or the Atlanta Fed's "GDPNow" projections for the 2Q2019 are reasonably accurate, we can expect the next report to move the headline somewhat south of where Goldilocks resides.

“We look forward to the BEA's next report,” Davis concluded “which will also contain their annual revisions to historical data.”

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.