Jack Dunn - Reclaiming Common Sense

People were thinking a 3.0% Fourth Quarter was Possible


Gross Domestic Product (GDP) is a rear facing economic indicator. The Advance Fourth Quarter GDP tells us the economic activity of October, November, and December of 2017. The Annualized GDP number is the hypothetical growth rate for the entire year based on one quarter. The Real GDP value is the growth during the past twelve months. The GDP is comprised of four major units: Personal Consumption Expenditures (PCE,) Gross Private Domestic Investments IGPDI,) Imports and Exports, and Government Spending. We just came off the best retail sales year ever. The end of year data for new home sales and existing home sales revealed that we had our best years since 2007. Housing is only a part of the GPDI picture. Non-residential Investments gave the GDP a pop last quarter. We have seen net exports of goods add to the GDP five of the past six quarters. Three percent growth for the annualized GDP rate for the fourth quarter may still be possible.


The Headline Annualized GDP Value was 2.6%. So what happened? What happened was that this fourth quarter value wasn't bouncing up from a value of 1.3% (2009,) or 0.8% (2011,) or 0.1% (2006.) The Annualized rate is the growth from a quarter that was already growing at over 3%. There was talk that this was going to be the first time in many years that we might have had three consecutive quarters with an annualized rate over 3%.


The Components that go into the annualized rate were all over 3%. The personal Consumption expenditures grew at an annualized rate of 3.8%. Gross Private Domestic Expenditures grew at 3.6%. Exports grew at 6.9%. Imports grew at 13.9%. Government Consumption and Expenditures grew at 3.0%. Here's the thing: Table 3 lists the seasonally adjusted at annual rates values for all of the data.


2016q4
2017q3
2017q4
Annual
Quarterly


Exports


$2241.5B
$2345.9B
$2419.2B
7.9%
3.12%
Imports
$2805.8B
$2880.1B
$3018.5B
7.5%


4.8%







How do we have exports rising 13.9% quarter to quarter when the Table 3 data shows that Imports only grew at 4.8%? This is an Important distinction because when the contributions to GDP are calculated the impacts of impacts and exports are negative to the GDP. We have been a net import country "for forever."


Personal Consumption Expenditures "saved" the GDP. PCE contributed 2.58% to the 2.6% GDP. GPDI added 0.6%. Government added 0.5%. Somehow the import disparity subtracted 1.13% from the GDP. How is this Possible? Exports grew 9.2% during 2014q2 and exports grew 10.2%. What boosted GDP that quarter was Gross Private Domestic Investments (GPDI) GPDI dropped 1.3% during 2014Q5 and dropped 6.2% 2015q4.  Will the PCE be revised higher after the preliminary fourth quarter MARTS retail sales numbers are released next month? What about after the final MARTS data is released. We know that the growth rate for retail sales for the entire year was 7.86%. The growth in MARTS retail sales from third quarter to fourth quarter was 13.16%. The growth in MARTS from fourth quarter to fourth quarter was 14.67% How can PCE only grow by 3.8%


Real GDP - Fourth Quarter to Fourth Quarter was recorded at 2.5%. This is the sixth consecutive increase in the Real GDP. We were in a slowdown from the beginning of 2015. This was seen in the "no growth" Dow Jone Industrial Average between June of 2015 and November of 2016. This has been tweeted out numerous times. The Current annualized rate has been higher than the lagging Real rate more many quarters. The 2.6% annualized rate being higher than the Real GDP rate means that the economy is still growing. We have not had a streak of six consecutive quarters of increasing real GDP growth  We had a streak of eight consecutive quarters of over 2% growth between 2015Q1 and 2007Q4. There were seven consecutive quarters of at least 2.0% growth between 2014Q2 and 2015Q4. First Quarter this year was 2.0%, so we are already in a streak of 4 consecutive quarters over 4%. This is a streak that needs to be watched.


Look on the bright side. We are seeing consistent growth in the GDP. We will see the retail data revised twice and the GDP revised twice. If the PCE value is contributing "all" of the growth in the annualized GDP then this data could be revised up quite significantly.


It's the economy.