4Q2019 Gross Domestic Product: Second Estimate

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In its second estimate of 4Q2019 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) bumped the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.10% (2.1% expected), up 0.02 percentage point (PP) from the “advance” estimate (“4Qv1”) but down less than 0.01PP from 3Q2019.

As with 4Qv1, three of the four GDP component groupings -- personal consumption expenditures (PCE), net exports (NetX) and government consumption expenditures (GCE) -- contributed to 4Q growth; private domestic investment (PDI) detracted from it.

This report contained no material changes, and the revisions can be regarded as statistical noise. As for details:

·     PCE. A 0.12PP decrease in good purchases was partially offset by a 0.09PP increase in spending on services.

·     PDI. A 0.10PP decline in fixed investment was more than offset by a 0.11PP increase in inventories.

·     NetX. A 0.07PP increase in exports was partially offset by a 0.03PP decrease in imports.

·     GCE. A 0.02PP increase in federal spending was essentially offset by a decline in state and local government spending

The BEA's real final sales of domestic product was revised modestly downward (-0.08PP, to +3.08%), which is 0.94PP above the 3Q estimate. 

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Consumer Metric Institute’s Rick Davis summarized the key points of this report as follows:

-- There were no reported material changes in a report that can be characterized as statistical noise.

-- Both consumer spending and commercial investments are weak.

-- The headline number is boosted by questionable inflationary assumptions and the BEA's logic for dealing with reduced imports (largely from China).

-- The quarter in question was one of high political theater/drama, which can explain a significant amount of the tepid consumer spending.

“We probably do not need to note that all of this reporting is for a quarter before the widespread impact of the new corona virus,” Davis added. “It could be argued that U.S. economic growth had already topped by 4Q2019, making it more vulnerable than usual to any sort of ‘Black Swan.’ And a Black Swan is exactly what we now see flying out of China.”

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.