Reclaiming Common Sense

The World was ending during December, according to some "experts."

First Quarter GDP Values indicate these Casandras were very wrong.


This column has written numerous articles regarding the Gross Domestic Product. The Headline Annualized GDP has been rising first quarter to first quarter since 2017Q1. The first quarter value during 2016 was only 1.5%. That value increased to 1.8% during 2017 and 2.2% during 2018. It was thought that the annualized GDP would be better than 2.6%, possibly 2.7% to 2.9%.The same quarter GDP has recently been growing over 3.0% .  The first quarter values here were 1.6% during 2016, 1.9% during 2017, and 2.6% during 2018Q1. It was projected that this same quarter GDP could hit 3.2% to 3.6%, or roughly 3.4%, this quarter, based on strong seasonally adjusted Retail Growth during the first quarter and based upon strong New Construction data.  There was a cornucopia of Casandras projecting Doom and Gloom at the end of 2018.  What was reported this quarter for the Advance First Quarter Annualized GDP and the Advance Same Quarter GDP?


Headline Annualized GDP came in at 3,2%. This was even higher than this column projected. This is normally the weakest quarter of the year. This is even including the Government Shutdown. It is important to note that the annualized GDP for 2018Q4 was revised down to 2.2% from 2.6%. It is also important to note that we only had two official "reads" on the  fourth quarter GDP, the "advance" value and the "final" value. There was no official "preliminary value" released due to the Government Shutdown. It appears that last month's "final" value was actually the "preliminary vale" and the revision to the q4 data was the "final" revision this month.  There will be another revision to this data when the "annual revisions" are released with the second quarter GDP report.


Headline growth driven by Gross Private Domestic Investments and Exports. Personal Consumption Expenditures only grew by 1.2% quarter to quarter. This seems low and may be revised higher over the next two GDP reports. Gross Private Domestic Investments (GPDI) increased by 5.1% while exports increased by 3.7%. What is being missed by most commentators is that the imports fell by 3.7%. Government Consumption Expenditures increased by 2.4%. This means that the four drivers of the economy are all in the positive.


Gross Private Domestic Investments and Exports accounted for most of the annualized growth. Table 2 of the GDP report show that Net Exports added 1.03% of the 3.2% annualized GDP, while GDPI added 0.92%, PCE added another 0.82% and GCE added 0.41%. There have been times during the past decade where GDP growth was driven by PCE, and where  Government Spending was adding a negative value to the GDP.


Same Quarter GDP grew by 3.2%. We also saw the fourth quarter "final" GDP value revised lower, as well as the Annualized GDP. The new "final" Fourth Quarter GDP is 3.0%. This is the eleventh straight quarter where the GDP has equaled or bettered the preceding same quarter GDP value.


Same Quarter GDP growth was driven by  Gross Private Domestic Investments and Exports. PCE grew by 2.7%. This is more rapid than the current rate of inflation. Exports are up 2.3%. Imports only grew by 1.6%. GCE grew 1.8% from first quarter last year.

Is the quarter to quarter driving up the same quarter data or is the same quarter data driving up the annualized data? The four major components for both the annualized GDP and the same quarter GDP were all positive. All cylinders are firing. This column has analyzed the same quarter data and found that we need five or six quarters of declining same quarter GDP before we hit two quarters of same quarter GDP decline, and enter a recession. We could see same quarter GDP hit 4.0% before we see it decline below 3.0%.