BEA Estimates 4th Quarter 2017 GDP Growth To Be 2.54%

The Numbers 

As a quick reminder, the classic definition of the GDP can be summarized with the following equation 

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand 

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows 

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left 

Summary and Commentary 

This report is a shockingly mixed bag. Consumers contributed more than the net headline number, with poor showings by inventories and imports more than offsetting material growth in fixed investments, exports and government spending. The notable takeaways from this report are 

-- Imports surged, even as the dollar weakened. Exports simultaneously increased materially. Clearly, currency movement is not the only thing happening in the foreign trade arena. 

-- Inventories once again wreaked havoc upon the headline number. What inventories gave last quarter they took away this quarter. 

-- The big story, however, was household disposable income. And noteworthy was the fact that the 3rd quarter numbers were quietly revised sharply downward. But the real shocker was that household savings rates dropped below those last seen at the brink of the "Great Recession." All of the surge in consumer spending came from savings, not paychecks -- meaning that the surge is simply not sustainable. 

This report is more troubling upon reflection than the +2.54% headline might suggest. Although the headline is sort of in the "Goldilocks" zone for US economic growth, having household income and the savings rate remind us of the summer of 2007 is unsettling at best. 

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