3Q2019 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 3Q2019 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +1.93% (1.7% expected), down 0.08 percentage point (PP) from 2Q2019’s +2.01%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 3Q2019 was 2.03% higher than in 3Q2018; that growth rate was slightly slower (-0.25PP) than 2Q2019’s +2.28% relative to 2Q2018.

Two groupings of GDP components -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) -- contributed to 3Q growth. Private domestic investment (PDI) and net exports (NetX) detracted from growth.

Besides consumer and government spending, positive contributions included housing investment and exports; however, business investment and inventory investment decreased. Imports also increased, which explains why net trade subtracted from GDP for the second consecutive quarter.

The increase in consumer spending reflected increases in both goods (notably recreational goods and vehicles, food and beverages, and other nondurables) and in services (led by health care and housing and utilities). Overall, personal consumption rose 1.9% in 3Q, after rising 3.0% during the prior quarter. Coincidentally, personal consumption was 100% of 3Q GDP growth; all other GDP components netted to 0%.

The BEA’s growth in real final sales of domestic product, which excludes the effect of inventories, dropped by nearly one-third, to +1.98%, down 0.94PP from 2Q2019. 

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“Although the headline number did not change significantly from quarter to quarter,” wrote Consumer Metric Institute’s Rick Davis, “there are items of concern in this new report.” Those items include the following:

* The headline number was rescued by exports and inventory growth -- two of the BEA's most volatile line items -- which do not reflect domestic consumption.

* The previously 3+% growth in consumer spending for goods and services weakened materially.

* The softening consumer spending is going into increased household savings -- ahead of the 4Q holiday spending cycle.

* Inventory changes went from a strong drawdown to a nearly neutral reading, indicating that although retailers are no longer clearing stock, they remain cautious about the highly anticipated holiday spending.

* And the BEA's own "bottom line" measurement of economic growth ("Real Final Sales") weakened by nearly a full percent (-0.94pp).

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.