2Q2016 Gross Domestic Product: Third Estimate

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In its third (“final”) estimate of 2Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +1.42%, up +0.33 percentage point from the August report and +0.59% compared to 1Q2016. Despite the upward revision, 2Q2016’s year-over-year growth rate was +1.28%, slower than 1Q2016’s +1.57%. The headline number ended up slightly better than consensus expectations of 1.3%.

Groupings of GDP components show that personal consumption expenditures (PCE) and net exports (NetX) contributed to 2Q growth. Private domestic investment (PDI) and government consumption expenditures (GCE) detracted from it.

Most of the improvement in the headline number came from a +0.24% change in commercial fixed investment; none of the other revisions were statistically significant. Despite the upward revision to commercial fixed investments, that line item remained in contraction at a -0.18% annualized rate. Inventories also contracted materially (-1.16% SAAR). Consumer spending growth continues to provide the vast majority of net growth, with spending on consumer goods contributing +1.51% and services +1.37% (a combined +2.88% contribution, more than twice the net headline number). 

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Consumer Metrics Institute again provided a fairly terse summary:

The only significant revision in this report involves a softening of the previously reported deep contraction in commercial fixed investment. The rest of the changes in this report were merely statistical noise. The key "big picture" items in this report include the following:

-- Most things not consumer related remained in contraction. It is a decently positive report that continues to mask commercial weakness.

-- Although consumer spending growth was relatively strong, most of that increased spending ultimately came from savings -- and not from improved disposable income (disposable income actually shrank in this report).

-- The majority of the reported growth disappears when a third party deflator (e.g., CPI) is applied to the nominal 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.