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February 28, 2019 | 4th Quarter GDP On High End of Expectations at 2.6%

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
 

The BEA combined the advance and second estimate into an “initial” report. Some data items were missing.

Based on incomplete data, the BEA reports the Initial Estimate of 4th-Quarter GDP at 2.6%.

Real gross domestic product (GDP) increased at an annual rate of 2.6 percent in the fourth quarter of 2018, according to the “initial” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.4 percent.

Due to the recent partial government shutdown, this initial report for the fourth quarter and annual GDP for 2018 replaces the release of the “advance” estimate originally scheduled for January 30th and the “second” estimate originally scheduled for February 28th.

The Bureau emphasized that the fourth-quarter initial estimate released today is based on source data that are incomplete or subject to further revision by the source agency. Updated estimates for the fourth quarter, based on more complete data, will be released on March 28, 2019.

The Econoday consensus was 2.2% in a range of 1.7% to 2.8%.

Minor Shutdown Impact

BEA estimates the impact of these reductions in services provided by the federal government subtracted about 0.1 percentage point from real GDP growth in the fourth quarter.

Prices

The GDP price index deflator was 1.8 percent, the same as for the third quarter.

The price index for gross domestic purchases, measures the prices of goods and services purchased by U.S. residents, regardless of where the goods and services are produced. In the fourth quarter, this index increased 1.6 percent, compared with a 1.8 percent increase in the third. Excluding food and energy, gross domestic purchases prices increased 1.8 percent, the same increase as in the third.

The PCE price index increased 1.5 percent in the fourth quarter, following an increase of 1.6 percent. Excluding food and energy prices, the PCE price index increased 1.7 percent after increasing 1.6 percent.

Wildfires

The BEA notes that It is not possible to estimate the overall impact of the California wildfires on GDP.

It also says the destruction of fixed assets, such as residential and nonresidential structures, does not directly affect GDP or personal income.

Contributions to GDP

  • Personal Consumption Expenditures PCE contributed 1.92 percentage points (Goods 0.80 and Services 1.11). Some data is missing for services.
  • Gross Private Domestic contributed 0.82 PP.
  • Change in Private Inventories contributed 0.13 PP
  • Net Exports subtracted 0.22 PP.

In light of the collapse in consumer spending in December and the slowdown in housing, some of these numbers seem questionable.

Yet, the BEA notes that it had three months of data for consumer spending on goods; shipments of capital equipment; motor vehicle sales and inventories; durable and nondurable goods manufacturing inventories; wholesale and retail trade inventories; exports and imports of goods.

Services, which contributed 1.11 percentage points to GDP, are a likely source of revisions.The BEA notes quarterly data on revenue and expenses for services industries were not available.

The BEA used 1.8% as its measure of inflation. If you believe that is on the low side, the then GDP estimate is on the high side.

Mike “Mish” Shedlock

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February 28th, 2019

Posted In: Mish Talk

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