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Lee Adler

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Consumer Metrics Institute BEA Revises 1st Quarter 2018 GDP Growth Downward to 2.00%

28 June 2018 - 12:00 AM

(If the tables or charts in this report do not seem to be presented correctly, please click here or navagate to http://www.consumeri...commentary.html to see this commentary as a Web Page.)

In their third (and final) estimate of the US GDP for the first quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.00% annual rate, down -0.17% from their previous estimate and down -0.88% from the prior quarter.

The growth rate for consumer spending for services was revised downward again by -0.15%, and there was a minor upward revision (+0.04%) to consumer spending on goods -- although that spending was still net contracting (-0.09%). Similarly, the growth in inventories declined by -0.14% while the growth in commercial fixed investment rose by a counterbalancing +0.18%. The growth rates for both exports and imports weakened by an aggregate -0.12%.

Real annualized household disposable income increased by $29 per annum, and the household savings rate was revised upward +0.2% to 3.3%. While the savings rate remained below recent norms, it was +0.6% better than the prior quarter -- which was the lowest level seen since the third quarter of 2007.

For this revision the BEA assumed an effective annualized deflator of 2.19%. During the same quarter (January 2018 through March 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 2.53%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been lower at a +1.71% annualized growth rate.

Among the notable items in the report :

-- Consumer expenditures for goods contracted at a -0.09% annualized rate (down -1.76% from the prior quarter).

-- The contribution to the headline from consumer spending on services dropped -0.15% to +0.69%. The combined consumer contribution to the headline number was +0.60%, down over 2% (-2.15%) from 4Q-2017.

-- The headline contribution from commercial private fixed investments was +1.23%, up +0.18% from the previous report but down slightly (-0.08%) from the prior quarter.

-- Inventories subtracted -0.01% from the headline number. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The growth in governmental spending was revised upward slightly (+0.02%), adding +0.22% to the headline number (although that growth rate is down -0.29% from the prior quarter).

-- Exports contributed +0.44% to the headline number, down -0.39% from the prior quarter.

-- Imports subtracted -0.48% from the headline number, up +1.51% from the prior quarter. In aggregate, foreign trade subtracted -0.04% from the headline number.

-- The "real final sales of domestic product" growth was revised downward to +2.01%, down a substantial -1.40% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was revised upward $29 in this report. The household savings rate was reported to be 3.3% (up +0.6% from the prior quarter). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.76% in aggregate since the second quarter of 2008 -- a meager annualized +0.77% growth rate over the past 39 quarters.



The Numbers, As Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $20.0 = $13.8 + $3.4 + $3.4 + $-0.6 % of GDP 100.00% = 68.98% + 16.93% + 17.27% + -3.18% Contribution to GDP Growth % 2.00% = 0.60% + 1.22% + 0.22% + -0.04%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 Total GDP Growth 2.00% 2.88% 3.16% 3.06% 1.24% 1.76% 2.79% 2.25% 0.57% 0.48% 1.63% 2.74% 3.24% Consumer Goods -0.09% 1.67% 0.97% 1.16% 0.15% 1.03% 0.69% 1.30% 0.46% 0.63% 0.95% 0.99% 0.93% Consumer Services 0.69% 1.08% 0.52% 1.08% 1.17% 0.97% 1.23% 1.28% 0.77% 1.17% 0.90% 1.04% 1.56% Fixed Investment 1.23% 1.31% 0.40% 0.53% 1.27% 0.28% 0.25% 0.22% -0.05% -0.41% 0.55% 0.77% 0.67% Inventories -0.01% -0.53% 0.79% 0.12% -1.46% 1.06% 0.16% -0.67% -0.64% -0.68% -0.22% -0.63% 1.45% Government 0.22% 0.51% 0.12% -0.03% -0.11% 0.03% 0.09% -0.16% 0.32% 0.05% 0.21% 0.60% 0.27% Exports 0.44% 0.83% 0.25% 0.42% 0.85% -0.47% 0.74% 0.32% -0.33% -0.29% -0.51% 0.47% -0.59% Imports -0.48% -1.99% 0.11% -0.22% -0.63% -1.14% -0.37% -0.04% 0.04% 0.01% -0.25% -0.50% -1.05% Real Final Sales 2.01% 3.41% 2.37% 3.94% 2.70% 0.70% 2.63% 2.92% 1.21% 1.16% 1.85% 3.37% 1.79%



Summary and Commentary

The changes reflected in this report are arguably all just statistical noise. The major takeaways from this report were :

-- Consumer spending for goods was still reported to be contracting during the quarter, and the reported growth in services spending weakened materially.

-- The overall annualized growth rate for consumer spending dropped -2.15% on a quarter-to-quarter basis.

-- Although household disposable income improved quarter-to-quarter (most likely due to the reduced withholding rates in the "Tax Cuts and Jobs Act of 2017"), most of that improvement went into increased savings.

-- The BEA's deflators were once again boosting the headline number, in this case by +0.29%.

The headline from the report should have read: "Consumer spending on goods continued to contract, while consumer spending on services was revised downward yet again." If consumers are the driving force for the US economy, a report like this should be raising major caution flags.
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Consumer Metrics Institute BEA Revised 1st Quarter 2018 GDP Growth Downward to 2.17%

30 May 2018 - 12:00 AM

(If the tables or charts in this report do not seem to be presented correctly, please click here or navagate to http://www.consumeri...commentary.html to see this commentary as a Web Page.)

In their second estimate of the US GDP for the first quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.17% annual rate, down -0.15% from their previous estimate and down -0.71% from the prior quarter.

The growth rate for consumer spending for services was revised lower by -0.13%, which was accompanied by a nearly offsetting +0.11% improvement in consumer spending on goods. Similarly, the growth in inventories declined by -0.30% while the growth in commercial fixed investment rose by a counterbalancing +0.29%. The growth rates for both exports and imports weakened by an aggregate -0.12%.

Both real annualized household disposable income and the household savings rate were unchanged from the previous report. While the savings rate remained below recent norms, it was +0.5% better than the prior quarter -- which was the lowest level seen since the third quarter of 2007.

For this revision the BEA assumed an effective annualized deflator of 1.96%. During the same quarter (January 2018 through March 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was materially higher at 2.53%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been significantly lower at a +1.64% annualized growth rate.

Among the notable items in the report :

-- Consumer expenditures for goods contracted at a -0.13% annualized rate (down -1.80% from the prior quarter).

-- The contribution to the headline from consumer spending on services dropped -0.13% to +0.84%. The combined consumer contribution to the headline number was +0.71%, down over 2% (-2.04%) from 4Q-2017.

-- The headline contribution from commercial private fixed investments was +1.05%, down -0.26% from the prior quarter.

-- Inventories added +0.13% to the headline number. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The growth in governmental spending was unchanged, adding +0.20% to the headline number (although that growth rate is down -0.31% from the prior quarter).

-- Exports contributed +0.51% to the headline number, down -0.32% from the prior quarter.

-- Imports subtracted -0.43% from the headline number, up +1.56% from the prior quarter. In aggregate, foreign trade boosted the headline number by +0.08%.

-- The "real final sales of domestic product" growth was revised upward to +2.04%, although that growth was down a substantial -1.37% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was unchanged in this report -- up $255 from a revised prior quarter. The household savings rate was reported to be 3.1% (up +0.5% from the prior quarter, but only half of the rate recorded for second quarter of 2015). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.68% in aggregate since the second quarter of 2008 -- a meager annualized +0.76% growth rate over the past 39 quarters.



The Numbers, As Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $20.0 = $13.8 + $3.4 + $3.4 + $-0.6 % of GDP 100.00% = 69.03% + 16.93% + 17.25% + -3.21% Contribution to GDP Growth % 2.17% = 0.71% + 1.18% + 0.20% + 0.08%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 Total GDP Growth 2.17% 2.88% 3.16% 3.06% 1.24% 1.76% 2.79% 2.25% 0.57% 0.48% 1.63% 2.74% 3.24% Consumer Goods -0.13% 1.67% 0.97% 1.16% 0.15% 1.03% 0.69% 1.30% 0.46% 0.63% 0.95% 0.99% 0.93% Consumer Services 0.84% 1.08% 0.52% 1.08% 1.17% 0.97% 1.23% 1.28% 0.77% 1.17% 0.90% 1.04% 1.56% Fixed Investment 1.05% 1.31% 0.40% 0.53% 1.27% 0.28% 0.25% 0.22% -0.05% -0.41% 0.55% 0.77% 0.67% Inventories 0.13% -0.53% 0.79% 0.12% -1.46% 1.06% 0.16% -0.67% -0.64% -0.68% -0.22% -0.63% 1.45% Government 0.20% 0.51% 0.12% -0.03% -0.11% 0.03% 0.09% -0.16% 0.32% 0.05% 0.21% 0.60% 0.27% Exports 0.51% 0.83% 0.25% 0.42% 0.85% -0.47% 0.74% 0.32% -0.33% -0.29% -0.51% 0.47% -0.59% Imports -0.43% -1.99% 0.11% -0.22% -0.63% -1.14% -0.37% -0.04% 0.04% 0.01% -0.25% -0.50% -1.05% Real Final Sales 2.04% 3.41% 2.37% 3.94% 2.70% 0.70% 2.63% 2.92% 1.21% 1.16% 1.85% 3.37% 1.79%



Summary and Commentary

As mentioned last month, we need to be cautious about taking this set of downward revised numbers for the actual growth rate of the US economy. All of the BEA's especially noisy components are contributing to the headline number: inventories, imports and deflators. At key economic inflection points those three components can become closely coupled, with lagging price discovery compounding reported inventory and import swings.

The major takeaways from this report were :

-- Consumer spending for goods was still reported to be contracting during the quarter, and the reported growth in services spending weakened materially.

-- The overall annualized growth rate for consumer spending dropped over -2% on a quarter-to-quarter basis.

-- Although household disposable income improved quarter-to-quarter (most likely due to the reduced withholding rates in the "Tax Cuts and Jobs Act of 2017"), most of that improvement went into increased savings.

-- The BEA's deflators were once again boosting the headline number, in this case by +0.53%.

The US economy was probably somewhat cooler than the BEA's already tepid headline number might suggest. Downward trending headline growth rates slightly above 2% is not the stuff that economic dreams are made on.
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Consumer Metrics Institute BEA Estimates 1st Quarter 2018 GDP Growth at 2.32%

27 April 2018 - 12:00 AM

(If the tables or charts in this report do not seem to be presented correctly, please click here or navagate to http://www.consumeri...commentary.html to see this commentary as a Web Page.)

In their first (preliminary) estimate of the US GDP for the first quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.32% annual rate, down -0.56% from the prior quarter.

The line item details were much weaker than the headline number might suggest. The most stunning news in the report was that consumer spending for consumer goods actually contracted during the quarter at a -0.24% annualized rate (down -1.91% from the prior quarter). Spending on consumer services also softened to a +0.97% annualized growth rate, down -0.11% from the prior quarter. The overall growth rate for consumer spending dropped over 2% from 4Q-2017 -- despite the roll-out of lower tax withholding rates during the quarter.

Weakening growth was also seen in the commercial and governmental sectors. Relative to the prior quarter the annualized growth rate for fixed commercial investment dropped -0.55%, governmental spending dropped -0.31%, and exports were -0.24% lower.

The only line items that recorded improving growth were inventories (up +0.96% from the prior quarter) and imports (up +1.60% from the prior quarter). In the BEA's formula, growth in these two line items is generally indicative of weakening domestic demand; and unfortunately the quarter-to-quarter swing in those two line items provided the headline number's entire positive spin.

Real annualized household disposable income increased a material $270 per year from the prior quarter, to $39,493 (in 2009 dollars) -- a reflection of improved "take-home" pay from the revised withholding tables. All of that improved "take-home" pay seems to have gone into savings, since the household savings rate improved to 3.1%. While this level is still below recent norms, it is +0.5% better than the prior quarter -- which was the lowest level seen since the third quarter of 2007.

For this revision the BEA assumed an effective annualized deflator of 1.98%. During the same quarter (January 2018 through March 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was materially higher at 2.53%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been significantly lower at a +1.82% annualized growth rate.

Among the notable items in the report :

-- Consumer expenditures for goods contracted at a -0.24% annualized rate (down -1.91% from the prior quarter).

-- The contribution to the headline from consumer spending on services dropped -0.11% to +0.97%. The combined consumer contribution to the headline number was +0.73%, down -2.02% from 4Q-2017.

-- The headline contribution from commercial private fixed investments was +0.76%, down -0.55% from the prior quarter.

-- Inventories added +0.43% to the headline number -- after removing -0.53% in the prior quarter (a quarter-to-quarter swing of +0.96%). It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- Governmental spending added +0.20% to the headline number, down -0.31% from the prior quarter. Most of that softening came from weakening infrastructure spending at a local level.

-- Exports contributed +0.59% to the headline number, down -0.24% from the prior quarter.

-- Imports subtracted only -0.39% from the headline number, up +1.60% from the prior quarter. In aggregate, foreign trade boosted the headline number by +0.20%.

-- The "real final sales of domestic product" growth was reported to be +1.89%, down a substantial -1.52% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was reported to have grown $270 per annum from the prior quarter. The household savings rate was reported to be 3.1% (up +0.5% from the prior quarter, but only half of the rate recorded for second quarter of 2015). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.68% in aggregate since the second quarter of 2008 -- a meager annualized +0.76% growth rate over the past 39 quarters.



The Numbers

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $20 = $13.8 + $3.4 + $3.4 + $-0.6 % of GDP 100.00% = 69.03% + 16.92% + 17.25% + -3.19% Contribution to GDP Growth % 2.32% = 0.73% + 1.19% + 0.20% + 0.20%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 Total GDP Growth 2.32% 2.88% 3.16% 3.06% 1.24% 1.76% 2.79% 2.25% 0.57% 0.48% 1.63% 2.74% 3.24% Consumer Goods -0.24% 1.67% 0.97% 1.16% 0.15% 1.03% 0.69% 1.30% 0.46% 0.63% 0.95% 0.99% 0.93% Consumer Services 0.97% 1.08% 0.52% 1.08% 1.17% 0.97% 1.23% 1.28% 0.77% 1.17% 0.90% 1.04% 1.56% Fixed Investment 0.76% 1.31% 0.40% 0.53% 1.27% 0.28% 0.25% 0.22% -0.05% -0.41% 0.55% 0.77% 0.67% Inventories 0.43% -0.53% 0.79% 0.12% -1.46% 1.06% 0.16% -0.67% -0.64% -0.68% -0.22% -0.63% 1.45% Government 0.20% 0.51% 0.12% -0.03% -0.11% 0.03% 0.09% -0.16% 0.32% 0.05% 0.21% 0.60% 0.27% Exports 0.59% 0.83% 0.25% 0.42% 0.85% -0.47% 0.74% 0.32% -0.33% -0.29% -0.51% 0.47% -0.59% Imports -0.39% -1.99% 0.11% -0.22% -0.63% -1.14% -0.37% -0.04% 0.04% 0.01% -0.25% -0.50% -1.05% Real Final Sales 1.89% 3.41% 2.37% 3.94% 2.70% 0.70% 2.63% 2.92% 1.21% 1.16% 1.85% 3.37% 1.79%



Summary and Commentary

It can be argued that the headline number materially overstates the actual growth rate of the US economy. All of the BEA's three major "smoke and mirrors" components seem to be in play for the first quarter of 2018: inventories, imports and deflators. At key economic inflection points those three components can become closely coupled, with lagging price discovery compounding reported inventory and import swings.

The major takeaways from this report are :

-- Consumer spending for goods contracted during the quarter.

-- The annualized growth rate for overall consumer spending dropped over -2%.

-- The growth rates for everything not inventories or imports weakened materially.

-- Although household disposable income improved (because of reduced withholding rates in the "Tax Cuts and Jobs Act of 2017"), most of that improvement went into increased savings. During the first quarter of 2018 households were showing signs of budgetary stress.

-- The BEA's deflators may once again be boosting the headline number, in this case by +0.50%.

The US economy is not quite as robust as the BEA's headline number might suggest. A +2.32% headline would generally be a good thing. But unfortunately, weakening domestic demand is causing inventories to soar and imports to crash -- which in the BEA's calculus are boosting what would otherwise be a much weaker headline number.

Although upcoming revisions might tell a different story, this report painted a picture of an economy in transition to materially lower growth.
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Consumer Metrics Institute BEA Revises 4th Quarter 2017 GDP Growth Upward to 2.88%

28 March 2018 - 12:00 AM

In their third (and final) estimate of the US GDP for the fourth quarter of 2017, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.88% annual rate, up +0.35% from their previous estimate, but still down -0.28% from the prior quarter.

The boost in the headline number resulted from upward revisions to contributions from consumer spending (+0.17%) and inventories (also a +0.17% increase, as a result of reportedly slower inventory contractions). No other line items changed materially. The BEA's "bottom line" for the quarter (their "Real Final Sales of Domestic Product", which excludes inventories) increased to +3.41%, up +0.18% from the previous estimate and +1.04% from the prior quarter.

Real annualized household disposable income decreased -$2 per year from the previous report to $39,223 (in 2009 dollars). The household savings rate deteriorated to 2.6%, lower than the level recorded in third quarter of 2007 -- at the onset of the "Great Recession."

For this revision the BEA assumed an effective annualized deflator of 2.35%. During the same quarter (October 2017 through December 2017) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was a very similar but slightly higher 2.49%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been slightly lower at a +2.82% annualized growth rate.

Among the notable items in the report :

-- The headline contribution from consumer expenditures for goods increased to +1.67%, up +0.06% from the +1.61% previously reported (and up +0.70% from the prior quarter).

-- The contribution to the headline from consumer spending increased +0.11% to +1.08%. The combined consumer contribution to the headline number climbed to +2.75%, up +1.26% from 3Q-2017.

-- The headline contribution from commercial private fixed investments was revised upward slightly (+0.02%) to +1.31%, up +0.91% from the prior quarter.

-- Inventories subtracted -0.53% from the headline number -- after removing -0.70% in the previous report and adding +0.79% in the prior quarter (a quarter-to-quarter swing of -1.32%). It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- Governmental spending added +0.51% to the headline number, up +0.02% from the previous report.

-- Exports contributed +0.83% to the headline number, up +0.58% from the prior quarter.

-- Imports subtracted -1.99% from the headline number, down -0.02% from the previous report and a drop of over two percent (-2.10%) from the prior quarter. In aggregate, foreign trade subtracted -1.16% from the headline number.

-- The "real final sales of domestic product" growth was revised upward to an annualized 3.41%, up +1.04% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was revised downward -$2 per annum from the previous report and it is now up only +$30 per annum from the 3rd quarter number. The household savings rate was reported to be 2.6% (down -0.8% from the prior quarter and down more than a full percent from 2Q-2017). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +6.94% in aggregate since the second quarter of 2008 -- a meager annualized +0.71% growth rate over the past 38 quarters.



The Numbers, as Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $19.8 = $13.7 + $3.3 + $3.4 + $-0.6 % of GDP 100.00% = 69.12% + 16.68% + 17.25% + -3.05% Contribution to GDP Growth % 2.88% = 2.75% + 0.78% + 0.51% + -1.16%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 4Q-2014 3Q-2014 2Q-2014 1Q-2014 Total GDP Growth 2.88% 3.16% 3.06% 1.24% 1.76% 2.79% 2.25% 0.57% 0.48% 1.63% 2.74% 3.24% 2.01% 5.20% 4.61% -0.92% Consumer Goods 1.67% 0.97% 1.16% 0.15% 1.03% 0.69% 1.30% 0.46% 0.63% 0.95% 0.99% 0.93% 1.26% 1.01% 1.38% 0.52% Consumer Services 1.08% 0.52% 1.08% 1.17% 0.97% 1.23% 1.28% 0.77% 1.17% 0.90% 1.04% 1.56% 2.10% 1.64% 0.96% 0.74% Fixed Investment 1.31% 0.40% 0.53% 1.27% 0.28% 0.25% 0.22% -0.05% -0.41% 0.55% 0.77% 0.67% 0.04% 1.45% 1.56% 0.76% Inventories -0.53% 0.79% 0.12% -1.46% 1.06% 0.16% -0.67% -0.64% -0.68% -0.22% -0.63% 1.45% -0.26% 0.44% 0.91% -1.69% Government 0.51% 0.12% -0.03% -0.11% 0.03% 0.09% -0.16% 0.32% 0.05% 0.21% 0.60% 0.27% -0.11% 0.39% 0.20% -0.11% Exports 0.83% 0.25% 0.42% 0.85% -0.47% 0.74% 0.32% -0.33% -0.29% -0.51% 0.47% -0.59% 0.65% 0.09% 1.22% -0.35% Imports -1.99% 0.11% -0.22% -0.63% -1.14% -0.37% -0.04% 0.04% 0.01% -0.25% -0.50% -1.05% -1.67% 0.18% -1.62% -0.79% Real Final Sales 3.41% 2.37% 3.94% 2.70% 0.70% 2.63% 2.92% 1.21% 1.16% 1.85% 3.37% 1.79% 2.27% 4.76% 3.70% 0.77%



Summary and Commentary

The boost in the headline number came equally from consumer spending and inventory revisions. The only other material change was the deteriorating household savings rate. The major takeaway from this report is the latter :

-- Despite the current happy unemployment numbers, household disposable income and savings rates remain weak. The savings rate is lower than the level seen at the brink of the "Great Recession" and disposable income has grown less than 7% in aggregate over the past 10 years.

As we mentioned last month, the stagnant household income numbers should (in theory) get a boost in the first and second quarters of 2018 from the "Tax Cuts and Jobs Act of 2017." The withholding changes should have been rolled out during the first quarter and will be in effect for the entire second quarter.

We will be watching closely to see when the improved take-home pay translates into higher consumer spending. It is likely that the spending boost will lag by a quarter or more while household budgets (and savings rates) regain some breathing room.
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Consumer Metrics Institute BEA Leaves 4th Quarter 2017 GDP Growth Essentially Unchanged...

28 February 2018 - 12:00 AM

In their second estimate of the US GDP for the fourth quarter of 2017, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.53% annual rate, down -0.01% from their previous estimate and down -0.63% from the prior quarter.

This report contains no material revisions. The largest change consisted of a shift of 0.15% growth from consumer goods spending to consumer services spending. Otherwise, no line item in the report changed by more than +/- 0.03%. The BEA's "bottom line" for the quarter (their "Real Final Sales of Domestic Product", which excludes inventories) increased slightly to +3.23%, up +0.02% from the previous estimate and +0.86% from the prior quarter.

Real annualized household disposable income improved +$12 per year from the previous report to $39,225 (in 2009 dollars). The household savings rate improved marginally to 2.7%, the same low level recorded in third quarter of 2007 -- at the onset of the "Great Recession."

For this revision the BEA assumed an effective annualized deflator of 2.34%. During the same quarter (October 2017 through December 2017) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was a very similar but slightly higher 2.49%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been slightly lower at a +2.44% annualized growth rate.

Among the notable items in the report :

-- The headline contribution from consumer expenditures for goods dropped to +1.61%, down -0.15% from the +1.76% previously reported (although still up +0.64% from the prior quarter).

-- The contribution to the headline from consumer spending on services exactly offset the revision to the consumer goods number, increasing +0.15% to +0.97%. The combined consumer contribution to the headline number remained at +2.58%, up a +1.09% from 3Q-2017.

-- The headline contribution from commercial private fixed investments was revised upward slightly (+0.02%) to +1.29%, up +0.89% from the prior quarter.

-- Inventories subtracted -0.70% from the headline number after adding +0.79% in the prior quarter (a swing of -1.49%). It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- Governmental spending added +0.49% to the headline number, down -0.01% from the previous report.

-- Exports contributed +0.84% to the headline number, up +0.59% from the prior quarter.

-- Imports subtracted -1.97% from the headline number, down -0.01% from the previous report and a drop of over two percent (-2.08%) from the prior quarter. In aggregate, foreign trade subtracted -1.13% from the headline number.

-- The "real final sales of domestic product" growth was revised upward slightly to an annualized 3.23%, up +0.86% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was revised upward +$12 per annum from the previous report and is now up +$32 per annum from the 3rd quarter number. The household savings rate was reported to be 2.7% (down -0.7% from the prior quarter and down a full percent from 2Q-2017). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +6.95% in aggregate since the second quarter of 2008 -- a meager annualized +0.71% growth rate over the past 38 quarters.



The Numbers, as Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $19.7 = $13.6 + $3.3 + $3.4 + $-0.6 % of GDP 100.00% = 69.14% + 16.65% + 17.25% + -3.04% Contribution to GDP Growth % 2.54% = 2.58% + 0.60% + 0.50% + -1.14%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 4Q-2014 3Q-2014 2Q-2014 1Q-2014 Total GDP Growth 2.53% 3.16% 3.06% 1.24% 1.76% 2.79% 2.25% 0.57% 0.48% 1.63% 2.74% 3.24% 2.01% 5.20% 4.61% -0.92% Consumer Goods 1.61% 0.97% 1.16% 0.15% 1.03% 0.69% 1.30% 0.46% 0.63% 0.95% 0.99% 0.93% 1.26% 1.01% 1.38% 0.52% Consumer Services 0.97% 0.52% 1.08% 1.17% 0.97% 1.23% 1.28% 0.77% 1.17% 0.90% 1.04% 1.56% 2.10% 1.64% 0.96% 0.74% Fixed Investment 1.29% 0.40% 0.53% 1.27% 0.28% 0.25% 0.22% -0.05% -0.41% 0.55% 0.77% 0.67% 0.04% 1.45% 1.56% 0.76% Inventories -0.70% 0.79% 0.12% -1.46% 1.06% 0.16% -0.67% -0.64% -0.68% -0.22% -0.63% 1.45% -0.26% 0.44% 0.91% -1.69% Government 0.49% 0.12% -0.03% -0.11% 0.03% 0.09% -0.16% 0.32% 0.05% 0.21% 0.60% 0.27% -0.11% 0.39% 0.20% -0.11% Exports 0.84% 0.25% 0.42% 0.85% -0.47% 0.74% 0.32% -0.33% -0.29% -0.51% 0.47% -0.59% 0.65% 0.09% 1.22% -0.35% Imports -1.97% 0.11% -0.22% -0.63% -1.14% -0.37% -0.04% 0.04% 0.01% -0.25% -0.50% -1.05% -1.67% 0.18% -1.62% -0.79% Real Final Sales 3.23% 2.37% 3.94% 2.70% 0.70% 2.63% 2.92% 1.21% 1.16% 1.85% 3.37% 1.79% 2.27% 4.76% 3.70% 0.77%



Summary and Commentary

The revisions in this report are arguably nothing more than statistical noise. In fact, the line-by-line revisions in this report are among the smallest ever recorded. The takeaways from this report are :

-- Revisions this minor are very unusual for a second estimate, perhaps indicative of a relatively stable economy (or more likely, better guessing in the first estimate).

-- The BEA's deflators are very similar to those published by the BLS -- probably the result of relatively stable price levels.

-- Despite the current happy unemployment numbers, household disposable income and savings rates remain weak. The savings rate is at the same level last seen at the brink of the "Great Recession" and disposable income has grown less than 7% in aggregate over the past 10 years.

Presumably the stagnant household income numbers will get a boost in the first and second quarters of 2018 as a result of the "Tax Cuts and Jobs Act of 2017." The withholding changes should have been rolled out during the first quarter and will be in effect for the entire second quarter.

It will be interesting to see how soon the improved take-home pay translates into the highly anticipated boost in consumer spending. Recent history suggests that the household savings rate will be the initial beneficiary of the higher pay checks -- at least during the quarter or more that household budgets may need to recover some breathing room.
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