BEA Leaves 3rd Quarter 2018 GDP Unchanged At 3.50%

In their second estimate of the US GDP for the third quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +3.50% annual rate, up +0.01% from their previous estimate but still down -0.66% from the prior quarter. 

The +0.01% improvement in the headline number masks a troublesome shift in the composition of that growth from consumer spending to even more inventory growth. The headline contribution from consumer spending on goods and services weakened by -0.24% and the growth is now lower than the prior quarter. Offsetting that was an upward revision to inventories (+0.20%), which are now reported to be growing at a +2.27% annualized rate. As a consequence, the BEA's "bottom line" measurement of the economy (the "real final sales of domestic product") was revised downward by -0.19%, now dropping by over four percent (-4.10%) from the prior quarter. 

The growth in commercial fixed investment was revised upward +0.29%, while government spending and foreign trade was revised a combined -0.24% downward. Foreign trade is now removing -1.91% from the headline number, off -1.79% from the prior quarter. 

Again it is worth noting that the headline number has been propped up by the most fickle of the BEA's data items: inventories; which added +3.44% more to the headline than they did during the prior quarter. 

Household disposable income was revised downward by -$86 per annum, and the household savings rate was revised downward to 6.3%, and is now down -0.2% from the prior quarter. 

For this revision the BEA assumed an effective annualized deflator of 1.41%. During the same quarter (July 2018 through September 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was somewhat higher at 1.83%. 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 +3.14% annualized growth rate. 

Among the notable items in the report 

-- The headline contribution from consumer expenditures for goods was revised downward -0.20% to +1.00%, down -0.16% from the prior quarter. 

-- The contribution to the headline from consumer spending on services was revised downward -0.04% to +1.44%, up +0.03% from last quarter. The combined consumer contribution to the headline number was revised downward -0.24% to +2.45%, down -0.13% from the prior quarter. 

-- Commercial private fixed investments was revised upward +0.29%, contributing +0.25 to the headline number. This remains down -0.85% from the prior quarter. 

-- Inventories boosted the headline number by +2.27%, up +0.20% from the previous estimate and up +3.44% from the prior quarter. 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 downward by -0.12%, and is now contributing +0.44% to the headline number (and up only +0.01% from the prior quarter). 

-- The exports crash worsened, and it is now subtracting -0.55% from the headline number, down -0.10% from the previous report and -1.67% from the prior quarter. 

-- Imports were largely unchanged in this report, subtracting -1.36% from the headline number (down -0.02% from the previous report and down -1.46% from the prior quarter). In aggregate, foreign trade negatively impacted the headline number by nearly two percent (-1.91%). 

-- The "real final sales of domestic product" growth was revised downward by -0.19% to +1.23%, and it is down over four percent (-4.10%) 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 income was revised downward -$86, but is still up $169 per annum from a revised prior quarter. The household savings rate was reported to be 6.3% (down -0.4% from the revised prior quarter). 

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