US BEA Estimates 4th Quarter 2018 GDP Growth At 2.58%

In their first (shutdown delayed) estimate of the US GDP for the fourth quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.58% annual rate, down -0.78 percentage points (pp) from the prior quarter. 

The relatively modest -0.78pp aggregate/net quarter-to-quarter change in the headline number masks a number of significant changes in the underlying line items: annualized inventory growth dropped over two percentage points (-2.20pp) quarter over quarter, foreign trade added +1.77pp to the headline relative to 3Q-2018, and consumer spending growth weakened by -0.46pp quarter-to-quarter. The previously strong growth in governmental spending mostly evaporated (down to an annualized +0.07%), while commercial fixed investments accelerated to a +0.69% annualized growth rate. 

Household disposable income was reported to be up +$381 per annum on a quarter over quarter basis, and the household savings rate was reported to be 6.7% (up +0.3pp from the prior quarter). 

For this estimate, the BEA assumed an effective annualized deflator of 1.96%. During the same quarter (October 2018 through December 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was materially smaller at 1.14% -- a little more than half of the BEA's number. Overestimating inflation results in pessimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been significantly higher at a +3.45% annualized growth rate. 

Among the notable items in the report 

-- The headline contribution from consumer expenditures for goods was reported to be +0.80pp, down -0.10pp from the +0.90% annualized growth rate recorded in the prior quarter. 

-- The contribution to the headline from consumer spending on services was reported to be +1.11pp, down -0.36pp from the prior quarter. The combined consumer contribution to the headline number was reported to be down -0.46pp from the prior quarter, marking the second consecutive quarter of weakening growth in consumer spending. 

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