BEA Estimates 3rd Quarter 2018 GDP Growth At 3.49%

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) $20.7 = $14.1 + $3.7 + $3.6 + $-0.6
% of GDP 100.00% = 68.09% + 17.84% + 17.19% + -3.13%
Contribution to GDP Growth % 3.49% = 2.69% + 2.03% + 0.56% + -1.79%

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

Summary and Commentary 

After last quarter's happy news, this report is somewhat sobering. The headline still looks good, but a wild swing in inventories has masked material deterioration in private fixed investments (in both commercial and residential construction) and foreign trade. 

Households, on the other hand, seem to be doing better -- as evidenced by steady consumer spending on both goods and services. 

This report is very different from the good news and solid numbers reported for the second quarter of 2018. 3Q-2018 certainly looks more like an economy in transition than what was reported for 2Q-2018. And we are always a little nervous when inventory growth is providing more than half of the headline number. 

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