Written by Steven Hansen
The third estimate of first-quarter 2019 Real Gross Domestic Product (GDP) was 3.1 % (unchanged from the second estimate).
Analyst Opinion of GDP
The surprise this release was the lowering of consumer credit and the increase in fixed investment. We have been saying all along that consumer spending is declining (the opposite of what the Federal Reserve is saying).
I am not a fan of the quarter-over-quarter exaggerated method of measuring GDP – but my year-over-year preferred method showed strong growth.
The market expected (from Econoday):
| Seasonally Adjusted Quarter-over-Quarter Change at an annual rate | Consensus Range | Consensus | Advance Actual | Second Actual | Third Actual |
| Real GDP – Q/Q change – SAAR | 3.0 % to 3.4 % | +3.1 % | +3.2 % | +3.1 % | +3.1 % |
| Real Consumer Spending – Q/Q change – SAAR | 1.3 % to 1.3 % | +1.3 % | +1.2 % | +1.3 % | +0.9 % |
| GDP price index – Q/Q change – SAAR | 0.8 % to 0.8 % | +0.8 % | +0.9 % | +0.8 % | +0.9 % |
| GDP core price index – Q/Q change – SAAR | 1.0 % to 1.3 % | +1.2 % | +1.3 % | +1.2 % | +1.3 % |
- Headline GDP is calculated by annualizing one quarter’s data against the previous quarter’s data. A better method would be to look at growth compared to the same quarter one year ago. For 1Q2019, the year-over-year growth is now 3.2 % – up from 4Q2018’s 3.0 % year-over-year. So one might say that the rate of GDP growth improved by 0.2 % from the previous quarter.
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Real GDP Expressed As Year-over-Year Change
The same report also provides Gross Domestic Income which in theory should equal Gross Domestic Product. Some have argued the discrepancy is due to misclassification of capital gains as ordinary income – but whatever the reason, there are differences.
Real GDP (blue line) Vs. Real GDI (red line) Expressed As Year-over-Year Change
This third estimate released today is based on more complete source data. (See caveats below.)
Real GDP per Capita
The table below compares the previous quarter estimate of GDP (Table 1.1.2) with the current estimate this quarter which shows:
- consumption for goods and services improved adding 0.6 % to GDP.
- trade balance improved adding 0.9 % to GDP
- inventory change added 0.6 % to GDP
- fixed investment added 0.5 % to GDP
- government spending added 0.5 % to GDP
The following is Table 1.1.2 before the annual revision: [click to enlarge]
z gdp_table.png
What the BEA says about the third estimate of GDP:
In the second estimate, the increase in real GDP was also 3.1 percent. Upward revisions to nonresidential fixed investment, exports, state and local government spending, and residential fixed investment were offset by downward revisions to personal consumption expenditures (PCE) and inventory investment and an upward revision to imports.
Inflation continues to moderate as the “deflator” which adjusts the current value GDP to a “real” comparable value continues to moderate. The following compares the GDP implicit price deflator year-over-year growth to the Consumer Price Index [this puts both on the same basis for comparision]:
What the BLS says about the revision from the second to the third estimate:
The first-quarter percent change in real GDP was the same as previously estimated, reflecting upward revisions to nonresidential fixed investment, exports, state and local government spending, and residential fixed investment that were offset by downward revisions to PCE and inventory investment, and an upward revision to imports.
In the same release, corporate profits data was released showing improving growth.
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $59.3 billion in the first quarter, compared with a decrease of $9.7 billion in the fourth quarter. Profits of domestic financial corporations increased $1.4 billion in the first quarter, in contrast to a decrease of $25.2 billion in the fourth quarter. Profits of domestic nonfinancial corporations decreased $68.1 billion, in contrast to an increase of $13.6 billion. Rest-of-the-world profits increased $7.4 billion, compared with an increase of $1.9 billion. In the first quarter, receipts increased $13.8 billion, and payments increased $6.4 billion.
Caveats on the Use of Gross Domestic Product (GDP)
GDP is a market value of all final goods and services produced within the USA where the money is used in the transaction – and it is expressed as an annualized number. GDP = private consumption + gross investment + government spending + (exports − imports), or GDP = C + I + G + (X – M). GDP counts monetary expenditures. It is designed to count the value added so that goods are not counted over and over as they move through the manufacture – wholesale – retail chain.
The vernacular relating to the different GDP releases:
“Advance” estimates, based on source data that are incomplete or subject to further revision by the source agency, are released near the end of the first month after the end of the quarter; as more detailed and more comprehensive data become available, “second” and “third” estimates are released near the end of the second and third months, respectively. The “latest” estimates reflect the results of both annual and comprehensive revisions.
Consider that GDP includes the costs of suing your neighbor or McDonald’s for hot coffee spilled in your crotch, plastic surgery or cancer treatment, buying a new aircraft carrier for the military, or even the replacement of your house if it burns down – yet little of these activities is real economic growth.
GDP does not include home costs (other than the new home purchase price even though mortgaged up to the kazoo), interest rates, bank charges, or the money spent buying anything used.
It does not measure wealth, disposable income, or employment.
In short, GDP does not measure the change of the economic environment for Joe Sixpack and Joe Sixpack’s kid, yet pundits continuously compare GDP across time periods.
Although there always will be some correlation between all economic pulse points, GDP does not measure the economic elements that directly impact the quality of life of its citizens.
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