3Q2019 Gross Domestic Product: Third Estimate

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In its third estimate of 3Q2019 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) shaved the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.11% (+2.1% expected), down 0.02 percentage point (PP) from the second estimate (“3Qv2”) but +0.10PP from 2Q2019.

Two of the four 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.

Although the headline number edged down by only 0.02PP, there were two material shifts in the underlying details: First, the growth rate for consumer spending on services was revised up by 0.22PP (to +1.02%). Second, the growth rate of inventories was trimmed by a nearly offsetting -0.20PP (to -0.03%). The only other somewhat material adjustment was to the growth rate of consumer spending on goods, which was revised down by 0.08PP, to +1.09%. Other details included:

* Personal consumption came in at 2.12% whereas PDI, NetX and GCE netted out to zero, indicating the consumer was once again the driving force behind GDP.

* Fixed investment was revised modestly less negative, to -0.14% from 3Qv2’s -0.18% -- but nevertheless represented the first consecutive QoQ drop in investment since 2009.

* Nonresidential fixed investment (i.e., spending on equipment, structures and intellectual property fell by 0.31% in 3Q after a 0.14% drop in 2Q.

* Private inventories were unexpectedly revised back into negative territory, subtracting 0.03PP from the headline, after adding 0.17PP in 3Qv2.

* Net trade exerted a bit more drag (down 0.03PP, to -0.14%) compared to 3Qv2. 

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“As might be expected for a second revision, most of this report's changes can be characterized as statistical noise,” wrote Consumer Metric Institute’s Rick Davis, whose observations can be summarized as follows:

-- We have had two quarters of roughly +2% growth following [one quarter] of 3% growth during 1Q2019. The numbers have not changed materially during the last two quarters, and although we might like slightly higher growth, a steady 2% makes the U.S. economy the envy of most of the developed world.

-- Looking forward, the Fed's forecasting series are of mixed mind. The New York Fed's “Nowcasting” projection for 4Q2019 is substantially weaker and well below 1% growth, while the Atlanta Fed's "GDPNow" forecast is actually pointing modestly upward.

-- And the breathlessly reported holiday retail reports are similarly of mixed mind. Not surprisingly it seems to matter which classes of retailers are being sampled -- or perhaps more importantly, which story line or agenda is being promoted.

-- All of which does not address the fact that we have collectively entered a whole new level of political "Fear, Uncertainty and Doubt" -- just as holiday shoppers head out for their final round of hunting and gathering.

"In summary, mixed messages are all around us," Davis concluded. "By selectively choosing among those messages it is possible to build a plausible argument for just about any future economic scenario. In the end we will simply have to wait and see -- and unfortunately the wait is probably until the upcoming quarter is safely in the rear-view mirror."

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.