In the third and final estimate of first quarter GDP, the BEA upped its assessment of GDP from 1.2% to 1.4%. The Econoday consensus expected no change. Let’s look at the details.
The first-quarter was still weak but does get an upgrade with today’s third estimate, now at a 1.4 percent annualized rate vs 1.2 percent and 0.7 percent in prior estimates. Consumer spending also gets an upgrade, to 1.1 percent from prior estimates of 0.6 percent and 0.3 percent. This had been the weakest consumer showing in 7 years but is now the weakest in 4 years.
Slower inventory growth stripped 1.1 percentage points from the first quarter rate. Looking at final sales, which exclude inventories, growth was very respectable at 2.6 percent. Both residential investment and business investment were the big positives that offset consumer weakness, adding 0.5 points and 1.2 points respectively. Government purchases subtracted 0.2 points as did net exports.
The first quarter turned out satisfactory enough and will take some of the heat off of the second quarter, where a big rebound was the initial expectation which, given continued weakness in consumer spending, has since eased back a bit.
Satisfactory Enough
Apparently, 1.4% is the news measure of satisfactory.
Bond yields are up for the second day, with the 30-year yield at 2.81, having touched 2.84 earlier in the day.
Diving Into the Revisions
Rick Davis at the Consumer Metrics Institue analyzes the the revisions in its Email report.
- Weak consumer spending grew at a meager +0.75% annualized rate during the quarter, up +0.31 from the previous estimate but still down a significant -1.65% from the prior quarter.
- The headline contribution from consumer expenditures for goods was still a miniscule +0.11% growth rate (down -1.18% from the prior quarter).
- The contribution to the headline from consumer spending on services strengthened as it was revised upward +0.27% to +0.64% (although that was down -0.47% from the prior quarter). The entirety of the increase came in upward revisions to the costs of healthcare and insurance (+0.38%). The combined consumer contribution to the headline number was +0.75%, down -1.65% from 4Q-2016.
- The headline contribution from commercial private fixed investments was revised downward -0.14% to +1.71%, although that remained +1.25% higher than the prior quarter. That growth was primarily in non-residential construction.
- Inventory contraction deducted -1.11% from the headline number, a downward revision of -0.04% from the previous estimate and down -2.12% 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.
- Governmental spending was still reported to be contracting, although at a revised lower annual rate (at -0.16%, down -0.19% from the prior quarter).
- Exports were revised upward +0.13% to a +0.82% contribution to the headline, a +1.37% improvement from the prior quarter.
- Imports were revised downward (-0.04%), and they subtracted -0.59% from the headline number (up +0.68% from the prior quarter). In aggregate, foreign trade added +0.23% to the headline number after subtracting -1.82% during the prior quarter.
- The “real final sales of domestic product” grew at an annualized 2.53%, up +0.30% from the previous estimate and up +1.46% from the prior quarter. This is the BEA’s “bottom line” measurement of the economy and it excludes the reported inventory contraction.
- Real per-capita annual disposable income was essentially unchanged. At the same time the household savings rate was revised downward again by -0.1%. It is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.32% in aggregate since the second quarter of 2008 — a meager annualized +0.81% growth rate over the past 35 quarters.
30-Year Bond
Yield on the long bond is up for the second day, but the monthly trend is pretty clear. The bond market does not think much of this recovery and neither do I.
Mike “Mish” Shedlock
“the BEA upped its assessment of GDP from 1.2% to 1.4%. The Econoday consensus expected no change.”
…
Oh, I’ll give Econoday (partial) credit. Nominal GDP remained in place … deflator changed, though. 2.2% in second estimate. Here 1.9%.
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Of course, no “expert” ever likes to mention the increase in debt to achieve growth.
BEA –
“Current-dollar GDP increased 3.4 percent, or $157.7 billion, in the first quarter to a level of
$19,027.1 billion.”
NYFRB on Q1 increase in household debt –
“Aggregate household debt balances increased in the first quarter of 2017, for the 11th consecutive quarter, finally surpassing the 2008Q3 peak of $12.68 trillion. As of March 31, 2017, total household indebtedness was $12.73 trillion, a $149 billion (1.2%) increase from the fourth quarter of 2016. Overall household debt is now 14.1% above the 2013Q2 trough.”
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2017Q1.pdf
And that is just household debt – does not include (hundreds of $billions) Federal / State / Local government debt, or business debt to achieve that growth.
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We talk about HH debt a lot, What about HH net worth ? HH NW is far higher than it was in 2008.
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So?
Net worth concentrated in the top 10%.
Debt (and leasing) in the masses
Anyways, when the markets roll over that “wealth” will evaporate … but the debt will still be standing tall (at least until it is written off / down).
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Income inequality in action. Wealth inequality in action. USA is becoming a third world country. It’s an irreversible and inevitable trend. Median HH net worth in the USA is lower than obscenely rigged and manipulated Japan (a country with better social cohesion, a uniform population and low crime) and some basket case European countries.
I suppose that’s what happens when we have exclusive free market capitalism for the top 1%.
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The US system encourages income inequality. Unions are disappearing, leaving the working class powerless. Those in control have convinced the populace that unions are the enemy. Soon, there will be no unions and there will be no middle class. Ninety percent of the workforce will be employed by temp agencies, work less than full-time, and be paid minimum wage. All the wealth will be held by the top 10%. The rest of you will be their slaves. Yet you all cheer as it is happening.
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public unions are responsible for the problem in Illinois, California, France, everywhere
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“I suppose that’s what happens when we have exclusive free market capitalism for the top 1%.”
You forgot “do not” in front of “have”.
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Public unions are not responsible for income inequality. Politicians and crony capitalism are responsible. And these politicians want you to believe that the unions are the problem. Once they get rid of all unions they can keep everything for themselves and there will no longer be a middle class. Its always the guy or gal actually doing the work that gets screwed.
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Corrupt Public unions got in bed with corrupt politicians
End of story
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Reblogged this on World Peace Forum.
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The US is operating pretty much at its full potential, given the mess it is in. 1-2% is the range I see going forward through Trumps term. Since Republicans control everything I was expecting an increase in growth to 2%, but watching how ineffective they are, I’m thinking anything above 1% will be good. Sadly, even this growth will end up in the pockets of the top 10%, as the middle class is powerless to get higher wages.
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