Sunday, 26 of March of 2017

Economics. Explained.  

Category » GDP

GDP

February 28, 2017

GDP

Our revised estimate of fourth quarter GDP growth came in at 1.9% which was unchanged from the original estimate.  That compares to a 3.4% pace in the third quarter.

Final sales, which is GDP excluding the change in business inventories grew at a 0.9% pace in the fourth quarter compared to a 3.0% pace in the third quarter.   Over the past year final sales have risen 1.9%.  In the fourth quarter inventories rose $46.2 billion compared to a third quarter increase of  $7.1 billion..  Thus, inventories added 1.0% to GDP growth in the fourth quarter.

Final Sales

Final sales to domestic purchasers excludes both the change in inventories and trade rose 2.6% in the fourth quarter versus a 2.1% increase in the third quarter.  Over the past year this series has risen at a 2.1% pace.  The deficit for net exports widened by $77.4 billion which means that the trade component subtracted  1.6% from GDP growth  in the fourth  quarter as exports declined 4.0% while imports climbed by 8.5%.

Final Sales to Domestic Purchasers

Consumption spending rose 3.0% in the fourth quarter versus a 3.0% increase in the third quarter.  We expect consumer spending to increase 2.8% pace in 2017.  Solid employment gains should boost  income.  The rising stock market will boost net worth.  Expected individual income tax cuts should further stimulate spending.  Everything related to the consumer seems quite solid.

Personal Consumption Expenditures -- Projected

Nonresidential investment climbed by 1.3% in the fourth quarter after having risen 1.4% in the third quarter.  We expect nonresidential invest to  increase 2.9% in 2017 and 4.5% in 2018 as business regains confidence in the wake of expected corporate tax cuts, relief from the currently onerous regulatory burden,  and some repatriation of earnings from overseas.

Nonresidential Investment -- Projected

Residential investment jumped 9.6% in the fourth quarter after having declined 4.1% in the third quarter.   While demand remains strong, builders are having an increasingly difficult time finding qualified workers which curtails growth in this category.   We expect residential investment to  increase 3.1% in 2017.

Residential Investment

The foreign sector as measured by the deficit for real net exports widened by $77.4 billion in the fourth quarter after having narrowed by $36.3 billion in the third quarter.  Exports declined 4.0% while imports rose by 8.0%.  The dollar has risen steadily since the election.  It may not rise too much more during the remainder of this year.  However, the deficit for net exports should  subtract 0.2% from GDP growth in 2017.

Net Exports -- Projected

Federal government spending declined 1.2% in the fourth quarter after  having risen 2.4% in the third quarter.  Government spending is expected to rise 1.4% in 2017 as President Trump increases defense spending while non-defense spending rises slightly.

Government Spending -- Federal

We expect growth of  2.4% this year, and 2.7% in 2018 given expected individual and corporate tax cuts and some repatriation of earnings from overseas.

Stephen Slifer

NumberNomics

Charleston, SC


Final Sales

January 27, 2016

Final Sales

When the economy is slowing down, firms will accumulate unwanted inventories.   Those inventories still show up in GDP, but they are unsold.  Hence, GDP will be biased upwards.  Similarly, in good times businesses will reduce inventory levels to satisfy demand.  In this case, GDP growth will be understated.

To get a sense of the underlying pace of sales, economists will look at final sales which is GDP less the change  in business inventories.  In the fourth quarter final sales rose 0.9% after having risen 3.0% in the third third quarter.  Given that GDP growth in the fourth quarter was 1.9%, the change in business inventories added 1.0% to  GDP growth in the fourth quarter.

We believe that growth will expand at a moderate pace throughout 2017.  Consumers are confident.  The stock market is close to another record high level.  Job growth is increasing.  The unemployment rate continues to decline slowly. Oil prices remain low.  Inventories remain lean.  Corporations are making steady profits.  They have a ton of cash.  Interest rates are going to remain low for another year.  Plus, the economy should receive some stimulus from expected individual and corporate income taxes and from some repatriation of overseas earnings.

Given all of this the economy should expand at a moderate  pace of  2.3% in 2017 and 2.6% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Final Sales to Domestic Purchasers

January 27, 2016

Final Sales to Domestic Purchasers

It is important to remember that final sales is a measure of how many domestically produced goods are sold each quarter.  But we also sell goods overseas — our exports.   And we purchase goods from other countries — our imports.

In the never-ending process of analyzing the GDP data, there is yet another series called “final sales to domestic purchasers” which measures how much U.S. residents are actually spending.  It starts with final sales, but then subtracts exports (which represents how much foreigners are buying from the U.S.) and adds imports (which represents how much U.S. residents are spending on imports).  The end result is a measure of sales to domestic purchasers.

Final sales to domestic purchasers rose 2.5% in the fourth quarter.  The deficit for real net exports widened by $77.4 billion in the fourth quarter as exports declined 4.3%% while imports climbed by 8.3% .  The widening of the trade gap means that the trade component subtracted 1.6% from GDP growth in the fourth quarter.  The dollar has risen significantly since the election as foreign investors have flocked into the U.S. stock and bond markets.  However, we do not expect it to rise too much farther in 2017.    However, the gradual widening of the trade gap should subtract about 0.2% from GDP growth this year.

Net Exports -- Projected

Going forward the positive factors are that the stock market remains close to another record high level.  The consumer is confident.  Consumers have record net worth.  Interest rates remain low.  The economy is creating a reasonable number  of new jobs.  The unemployment rate continues to decline slowly,  oil prices remain low, the housing sector is expanding nicely, and income is rising.  Furthermore, corporations are making steady profits, have a ton of cash, and corporate interest rates remain low.  Finally, the economy should receive some  stimulus from expected individual and corporate income tax cuts plus some repatriation of overseas earnings.

The economy should expand at a moderate 2.3% in 2017 and 2.6% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Gross Domestic Purchases Deflator

January 27, 2017

Gross Domestic Purchases Deflator

There are many different deflators that are available.  This one is for gross domestic purchases which measures prices paid by U.S. residents.  It is the one measure of inflation that the Commerce Department talks about when it releases the GDP report.   It is our broadest measure of inflation and contains more than 5,000 goods and services.

The gross domestic purchases deflator 2.0% in the fourth quarter after having risen 1.5% in the third quarter.  Over the past year this index has risen 1.5%.

Excluding the volatile food and energy components this index rose 1.4% in the fourth quarter after having risen 1.7% in the third quarter.

Remember that these deflators are weighted measures of inflation.  That means that when a builder switches from using copper pipe to PVC to save money, it registers as a price decline in these particular inflation measures.  Or when a consumer switches from buying butter to less expensive margarine the result is the same.  Thus, the deflator represents a combination of price changes and changes in consumer and business behavior.

The CPI, however, is a fixed basket of goods and services.  So what it shows are price changes only which, to us, is what inflation is all about.   In 2017 we look for the overall CPI to increase 2.8% while the core rate rises by 2.7%.  Oil prices should increase slightly, rents will continue to climb, medical costs will surge, and with the economy at full employment wages will begin to climb and lead to higher prices.

Stephen Slifer

NumberNomics

Charleston, SC