BEA Revises 4th Quarter 2017 GDP Growth Upward To 2.88%

The Numbers, as Revised 

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 

The boost in the headline number came equally from consumer spending and inventory revisions. The only other material change was the deteriorating household savings rate. The major takeaway from this report is the latter 

-- Despite the current happy unemployment numbers, household disposable income and savings rates remain weak. The savings rate is lower than the level seen at the brink of the "Great Recession" and disposable income has grown less than 7% in aggregate over the past 10 years. 

As we mentioned last month, the stagnant household income numbers should (in theory) get a boost in the first and second quarters of 2018 from the "Tax Cuts and Jobs Act of 2017." The withholding changes should have been rolled out during the first quarter and will be in effect for the entire second quarter. 

We will be watching closely to see when the improved take-home pay translates into higher consumer spending. It is likely that the spending boost will lag by a quarter or more while household budgets (and savings rates) regain some breathing room. 

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