BEA Leaves 2nd Quarter 2018 GDP Growth Essentially Unchanged At 4.16%

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 

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 

All of the revisions in this report can be characterized as statistical noise. Nonetheless, a headline number with +4.16% growth is very good, confirming that the stimulus expected from the "Tax Cuts and Jobs Act of 2017" has materialized. And the BEA's own "bottom line" Real Final Sales growth was reported to be +5.33%. 

As we have mentioned before, this kind of growth signals that the Fed's accommodations over the past decade are certainly no longer needed. And if the growth persists in this range for another quarter or two, significant tightening might be warranted to prevent the economy (and wage-price inflation) from overheating. 

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