The Advance Gross Domestic Product for the fourth quarter of 2017 was released at the end of January when it was reported that the headline annualized rate of growth was 2.6% and the Real GDP data was reported at 2.5%. The real annualized data indicates where the economy would be if it grew at the same rate for four quarters at the current rate of growth. The Real GDP tells us where were have been during the past twelve months. It is important to note that the annualized GDP can vary substantially from quarter two quarter. While we never had a year with an annual GDP of over 3.0% during the Obama Administration, we did have multiple quarters where the annualized rate was over 3%, over 4%, and even over 5% during the third quarter of 2015.
The GDP is comprised of four main components with sub-components. The GDP is comprised of the Personal Consumption Expenditures, Gross Private Domestic Investment, Import/Export Data, and Government spending. The "problem" is that the GDP data is based upon seasonally adjusted data and that the seasonally adjusted data has seasonal factors that change from month to month, quarter to quarter, and year to year. The retail sales data this past year was a record setting year. We know that here has been service inflation and commodity deflation during the past few months. Government spending is up over last year's spending. October through December 2016 950.6 billion dollars was spent. We saw the government spend 994.7 billion dollars during October, November, and December of 2017. That is an increase of 4.64%. A large share of the gross private domestic investment (GPDI) comes from residential and non-residential construction. The seasonally adjusted new construction data increased 1.7% seasonally adjusted, as was detailed in yesterday's "What's the Real GDP?" The same article detailed the recent growth in the import and export numbers. Imports boost GDP while exports reduce GDP. So how was the data revised between the 2017Q4 advance report and the 2017Q4 preliminary report?
The Annualized GDP came in at 2.5%, down from 2.6%. GPDI was revised down from 3.6% to 3.5%. Government Expenditures were revised down from 3.0% to 2.9% in the Table 1 table.
There is a large drag on the Fourth Quarter data because of an Import-Export Imbalance. The advance report had exports at 6.9% and imports at 13.9%. Those values were revised to 7.1% and 14.0%
The Table 2 data reveals how much of a drag it is, in theory. The Personal Consumption expenditures contributed 2.58% to the Annualized GDP, while GPDI added 0.59% and Government expenditures added 0.49% If we had not run an import imbalance then the annualized GDP would have been 3.66%. The problem is that the seasonally adjusted import-export data provided by the Census Shows quarter to quarter (Q2Q) export growth of 3.4% and Q2Q import growth of 5.5%. This is significantly Lower than the GDP data indicates.
Table 8 Real GDP was unchanged at 2.5%. There were no changes in the Table 8 data for GPDI or government expenditures. The Import-Export data was revised from 4.9% and 4.6% to 5.0% and 4.6% The table 8 data measures the same quarter change. The Same Quarter to Same Quarter (SQ2SQ) data, comparable to the Table 8 data, shows real growth of exports at 7.83% and Real Exports at 8.52%, significantly HIGHER than the GDP value.
The trend is our friend. Real GDP has been up six consecutive quarters. Annualized GDP could drop during the first quarter and surge during the Second and third quarter of this year. That data will not start coming out for two more months. We may see a surge in GPDI. We should continue seeing improving PCE data from the MARTS report.
It's the economy.
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