It's the Economy

Don’t Be Surprised by Tomorrow’s GDP Report

 Fourth Quarter GDP Could be the Best Fourth Quarter since 2011

You have heard elsewhere, and possibly read elsewhere, that the Government Shutdown is/was going to negatively impact our Gross Domestic Product, or GDP.  This column has produced an article titled “Government Shutdown may Not Show Up in Government Data.”  The biggest problem, from this column’s perspective, was that the Government Data was being held hostage by the Government Shutdown. Here is what you need to know regarding the Fourth Quarter GDP data that is scheduled to be released tomorrow.

There are four Components to the GDP. The four components to GDP are “Personal Consumption Expenditures (PCE,) Gross Private Domestic Investments (GPDI,) Gross Government Consumption Expenditures, and the Import/Export Balance. Some in the media say that the trade balance does not impact GDP. The problem is that the import surplus counts as a negative to GDP, by definition.

There are two forms of GDP. The headline GDP value is the “annualized” GDP. The Annualized GDP is the rate at which the economy would grow over the next year if we grew at the same rate we grew during the current quarter. The second GDP is the same quarter GDP. This gives us an idea of the end of the year growth, especially the fourth quarter data.

The GDP was revised back to 1929 earlier this year. Last year at this time we were discussing whether or not 3% was possible for an end of year value. Last year the original second, third, and fourth quarter GDP values were 3.1%, 3.2% and 2.6%. The Second quarter GDP was revised down to 3.0%, and the third quarter GDP was revised down to 2.8% and the fourth quarter GDP was revised down to 2.3%.

Personal Consumption Expenditures should be up considerably this year. We do not have the December New Construction Data, nor the December New Home Sales Data. We also do not have the December MARTS Retail data. What we do know is that as of the November New Construction data that we were having one of our best years since 2008 for starts, units under construction, and completions. We were having one of our best new home sales years since 2008, through the month of October. We did not receive the November New home sales data due to the shutdown.  We were on track for our first $6 trillion retail sales year, through November.

Gross Private Domestic Investments spiked during the third quarter. You may not have heard this elsewhere. It was reported here when the “final” revision to the third quarter GDP was reported. Same Quarter growth was up 6.0% while Quarter to Quarter GDPI grew by 15.1%. Watch the same quarter growth. Do not expect another 15.1% quarter to quarter growth.

Government Revenue is Up. Government Spending is Up. The December Treasury report was postponed due to the Shutdown. There may be some spending shifted from December to January or February. 

The Import Export data comes from the Census Bureau – the same place where we receive the new home construction and new home sales data. We will see what happened some time next month.

The Quarter to Quarter GDP tends to drop during the fourth quarter. It also tends to spike during the second quarter. The drop last quarter was from 4.2% to 3.4%. Fourth Quarter GDP grew from 0.4% to 1.8% to 2.3% fourth quarter of 2015 to 2016 to 2017. Could we see a value around 2.8%? Down could be up.

The Same Quarter GDP has been improving for nine consecutive quarters. Going for number 10. Same quarter GDP was slowing from 2015Q1 through 2016Q2. Slowing growth is not the same thing as a recession. There is a MSM obsession with a potential Trump Recession. We have to have a slowdown and two quarters of contraction (negative growth) in order to have a recession. We have had nine consecutive quarters of accelerating growth, starting 2016Q3. Growth has been improving by roughly 0.2% a quarter. We could hit 3.1%-3.3% this quarter. Table data is from the Third Quarter report.

Former President Obama never had a total year of 3.0% growth. The best he ever achieved was 2.9% during 2015. This may be the headline tomorrow: “President Trump achieves 3.1% annual GDP growth.” Then again, the headline could also be “Annualized GDP dropped to 2.8%.” There is a big difference between Annual GDP and ANnualized GDP. Most of the fourth quarter activity was performed before the shutdown. The recording and reporting of the data is another thing. Watch for substantial revisions to the fourth quarter data during the next two months.

It’s the economy.

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