In their second estimate of the US GDP for the second quarter of 2017, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +3.04% annual rate, up +0.48% from their previous estimate and up +1.80% from the prior quarter.

Consumer spending was revised upward to a +2.27% annualized growth rate (up +0.34% from the previous estimate and up +0.95% from the prior quarter). The inventory contribution continued to be essentially neutral (+0.02), while the previous growth in commercial fixed investment was revised upward (to +0.58%). Governmental spending was revised back into contraction (-0.05%), and the growth rates for both exports (+0.45%) and imports (-0.23%) moderated.

The BEA's "bottom line" (their "Real Final Sales of Domestic Product", which excludes inventories) was revised upward to +3.02%, up +0.32 from the prior quarter.

Real annualized household disposable income was revised upward $6 to $39,292 (in 2009 dollars). The household savings rate was again revised downward by -0.1% to 3.7% (down -0.2% from the prior quarter).

For this revision the BEA assumed an effective annualized deflator of 0.96%. During the same quarter (April 2017 through June 2017) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was a minuscule 0.06%. Over estimating inflation results in pessimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been materially higher at a very healthy +3.96% annualized growth rate.

Among the notable items in the report :

-- The headline contribution from consumer expenditures for goods was reported to be +1.27% (up +1.12% from the prior quarter).

-- The contribution to the headline from consumer spending on services also strengthened to +1.00% (although that remained down -0.17% from the prior quarter). The combined consumer contribution to the headline number was +2.27%, up +0.95% from 1Q-2017.

-- The headline contribution from commercial private fixed investments was revised upward to +0.58%, although that was still down a material -0.69% from the prior quarter. That continued to reflect a reported contraction in residential construction.

-- Inventory continued to be neutral (at +0.02%). This was a +1.48% improvement from the prior quarter. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- Governmental spending was reported to be contracting slightly, at a -0.05% rate. This was a +0.06% improvement from the prior quarter.

-- Exports contributed +0.45% to the headline number, down -0.40% from the prior quarter.

-- Imports deducted -0.23% from the headline, which was up +0.40% from the prior quarter. In aggregate, foreign trade added +0.22% to the headline number.

-- The "real final sales of domestic product" grew at an annualized 3.02%, up +0.32% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable income was revised downward slightly (by $6 per annum). At the same time the household savings rate was reported to have dropped another -0.1% (now down -0.2% from the prior quarter). It is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.13% in aggregate since the second quarter of 2008 -- a meager annualized +0.77% growth rate over the past 36 quarters.

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 :

Quarterly Changes in % Contributions to GDP

Summary and Commentary

At face value this report records an economy in a state of healthy growth. The notable takeaways from this report are :

-- Consumer spending provided 2.27% to the headline number, more than two thirds of the total growth.

-- Commercial fixed investment was revised upward significantly to +0.58%, although there continued to be a contraction in residential construction.

-- Inventories did not distort the headline.

-- Exports and Imports continue to provide a net positive (+0.22%) contribution to the headline number.

Per this report the US economy is in a very pleasant zone -- slightly over the Goldilocks +3% number that is neither too cool nor too hot. Consumer spending has rebounded into normal ranges. It would appear that US consumers have shrugged off the unrelenting domestic political drama and moved on to more normal spending patterns -- although they are dipping into savings to do so. In short, this report is certainly good enough to provide the Federal Reserve with the data needed to justify moving forward with their "normalization" campaign.

Consumer Metrics InstituteTM
Home of Daily Consumer Leading Indicators

http://www.consumerindexes.com

© 2017 Copyright Consumer Metrics Institute - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.