Fourth Quarter GDP and the Government Shutdown
There were a number of pundits who thought that he fourth quarter GDP might be negatively impacted by the Government Shutdown. This column produced one article "Government Shutdown May Not Show Up in Government Data," and a second article "Don't be Surprised by 4Th Quarter GDP."
The thoughts were that the fourth quarter data was all but certain by the time that the shutdown began and that what "damage" was done would be undone during the first quarter. The GDP forecast article projected a better fourth quarter than last year, even if it slowed from the third quarter level. The same quarter data was anticipated to grow over 3.0%.
Retail Sales were on a record pace during November. Inflation was over, or around 2.0% each month of the final quarter. Both will boost Personal Consumption Expenditures (PCE.) New Home Construction was on the path for its best year since 2008. This could boost Gross Private Domestic Investments (GPDI.) Government Spending was on a record pace, as was Government Revenue. This should have boosted Government Consumption Expenditures (GCE.) We appear to be winning the Tariff War with China, which could reduce imports and bolster the Import Export Data. What was reported in the Advance Fourth Quarter GDP report?
Quarter to Quarter Growth, Annualized GDP, hit 2.6%. Quarter to Quarter growth was expected to drop from the third quarter and still be better than Fourth Quarter of last year. Naysayers will say that this is a drop from third quarter's 3.4% which was a drop from second quarter's 4.2%. The only times since 2005 where the annualized GDP was reported higher was when it came off a lower third quarter value. The individual components were 2.8% for personal consumption expenditures (PCE,) 4.6% for Gross Private Domestic Investments (GPDI,) 1.6% for exports, 2.7% for imports, and 0.4% for Government Consumption Expenditures (GCE.) The media estimates of what to expect were lowered to 2.3% for annualized GDP right before the report was released. This was a "solid beat."
Same Quarter growth was expected to grow for the tenth straight quarter, and it did grow to 3.1%. The same data for 2017 was 2.4%, 1.9% for 2016, 2.0% for 2015, 2.7%, 2.6% for 2014 and 2.6% during 2010. Stated another way: This was the best fourth quarter growth since 2005. PCE rose by 2.7%, GPDI grew by 7.0%, exports were up 2.3%, imports were up 3.5% and GCE was up 1.8%
It was anticipated that we would see a total annual growth for 2018 of 3.0% or more. The advance final 2018 GDP was 2.9%. This is comparable to 2015 when we also hit 2.9%, after many revisions. It is important to note that the "final" annual GDP for 2015 was reported at 2.4% during the March 2016 Final fourth quarter report. This means, using that published data, that this was the best GDP since 2000 when it hit 4.1%. Readers of this column understand that the data was revised back to 1929 last year making all previous data "obsolete." That being said, President Obama's best year was 2.9%. His 2.9% was a GRP (Gross Revised Product) and not a true GDP.
Gross Private Domestic Investment up back to back quarters. GPDI was up 4.6% Q2Q after being up 15.2% the prior quarter, and compared to only 0.8% during 2017Q4. Same quarter growth was up 7.0% after being up 6.1% last quarter and 5.0% during 2017Q4. The investment into the economy means that this expansion should have more "legs" and that we have not "hit the wall" as of yet. The economy is a marathon, not a sprint.
The trade balance matters. The same data for imports and exports reveal that Q2Q exports rose 1.6% after falling 4.9% during 2018Q3 and after growing 6.6% during 2017Q4 and the then "looming trade war." Same quarter data was 2.3% for exports and 3.5% for imports compared to 4.7% and 5.4% during 2017Q4. Growth on growth is critical. The Annualized GDP would have been reported 0.22% higher if we had a neutral trade situation, as it is, trade reduced our GDP by 0.22%
The third quarter GDP was released with "great concerns" that the growth economy was slowing from its rapid 4.2% growth during the second quarter. This column published an articlethat showed that, using the same quarter GDP, we would need 6 quarters of slowing same quarter GDP followed by two quarters of contracting, negative, GDP to go into a technical recession. We still would need 5-6 quarters of declining same quarter GDP to fall into a recession and we still need two quarters of contraction, negative GDP, to be in a technical recession. This means that we might be in a recession during 2020Q4. Then again, I could win the lottery by the end of 2020.
It's the economy.
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