Written by Steven Hansen
The advance estimate for third-quarter 2019 Real Gross Domestic Product (GDP) is a positive 1.9 %. This growth is worse than the previous quarter’s 2.0 % if one looks at quarter-over-quarter headline growth. Year-over-year growth also declined.
Analyst Opinion of GDP
The weakness this quarter was consumer spending which slowed relative to the previous quarter.
I am not a fan of quarter-over-quarter exaggerated method of measuring GDP – but my year-over-year preferred method showed a moderate deceleration from last quarter.
The market expected (from Econoday):
| Seasonally Adjusted Quarter-over-Quarter Change at an annual rate | Consensus Range | Consensus | Advance Actual | Second Actual | Third Actual |
| GDP core price index – Q/Q change – SAAR | 1.2 % to 1.9 % | 1.7 % | +1.9 % | ||
| Real Consumer Spending – Q/Q change – SAAR | 2.1 % to 2.8 % | 2.6 % | +2.9 % | ||
| GDP price index – Q/Q change – SAAR | 1.3 % to 2.3 % | 1.8 % | +1.7 % |
Consider:
- This advance estimate released today is based on source data that are incomplete or subject to further revision. (See caveats below.) Please note that historically advance estimates can be little more than wild guesses.
- 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 3Q2019, the year-over-year growth is now 2.0 % – down from 2Q2019’s 2.3 % year-over-year. So one might say that the rate of GDP growth decelerated by 0.3 % from the previous quarter.
Real GDP Expressed As Year-over-Year Change
The same report also provides Gross Domestic Income (GDI) 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
Real GDP is inflation-adjusted and annualized – and Real GDP per capita remains on a general upward trend.
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 declined but added 2.9 % to GDP.
- trade balance improved but removed 0.1 % from GDP
- inventory decline removed 0.1 % from GDP
- fixed investment declined and removed 0.2 % from GDP
- government spending declined but added 0.4 % 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 this advance estimate:
The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, residential fixed investment, state and local government spending, and exports that were partly offset by negative contributions from nonresidential fixed investment and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased
The deceleration in real GDP in the third quarter reflected decelerations in PCE, federal government spending, and state and local government spending, and a larger decrease in nonresidential fixed investment. These movements were partly offset by a smaller decrease in private inventory investment, and upturns in exports and in residential fixed investment.
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 deflator to the Consumer Price Index:
Caveats on the Use of Gross Domestic Product (GDP)
GDP is the market value of all final goods and services produced within the USA where 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 did not measure the change of the economic environment for Joe Sixpack in 1970 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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