Tuesday, 22 of January of 2019

Economics. Explained.  

GDP

December 21, 2018

The final revision to third quarter GDP growth came in at 3.4% which  compares to 4.2% growth in the second quarter.  For 2017 as a whole GDP rose 2.5%.  We expect GDP growth of 3.1% this year and 2.8% in 2019.

Final sales, which is GDP excluding the change in business inventories slowed to 1.0% in the third quarter after having surged 5.4% in the second quarter.   Over the past year final sales have risen 2.9%.  In the third quarter inventories  climbed $89.8 billion after having actually declined  $36.8 billion in the second quarter.  Thus, inventories  added 2.4% to GDP growth in the third quarter.  Inventories are expected to rise by roughly $75 billion per quarter in the quarters ahead.

Final sales to domestic purchasers excludes both the change in inventories and trade rose by 2.9% in the third quarter after having risen 4.0% in the second quarter.  Over the past year this series has risen at a 3.3% pace.  The deficit for net exports widened by $108.7 billion in the third quarter after having narrowed by $61.4 billion in the second quarter which means that the trade component subtracted 1.9% from GDP growth in the third quarter after having added 1.4% to GDP growth in the second quarter.  In the third quarter exports declined 4.9% while imports surged by 9.3%.

Consumption spending rose 3.5% in the third quarter.  Steady employment gains of about 200 thousand per month should boost  income.  The consumer has little debt.  And interest rates remain relatively low.  Everything related to the consumer seems quite solid.

Nonresidential investment rose just 2.5% in the third quarter after  having climbed by 8.7% in the second quarter.  For 2017 nonresidential investment climbed 6.3%.  We expect nonresidential investment to  increase  7.2% in 2018 and 6.5% in 2019 as corporate tax cuts, relief from an onerous regulatory burden,  and some repatriation of earnings from overseas contribute to the run-up.

Residential investment declined 3.6% in the third quarter after having declined 1.3% in the second quarter and 3.4% in the first quarter.   For 2017 as a whole residential investment rose 3.8%    While demand has softened a bit, builders are having an increasingly difficult time finding qualified workers which curtails growth in this category.   We expect residential investment to decline 2.1% in 2018 and be unchanged in 2019.

The foreign sector as measured by the deficit for real net exports widened by $108.7 billion in the third quarter to -$949.7 billion after having narrowed by $61.4 billion in the second quarter.  Exports declined 4.9% in the third quarter while imports surged by 9.3%.  We expect the deficit for net exports to subtract 0.1% from GDP growth this year and subtract 0.2% from GDP growth in 2019.

Federal government spending rose 3.5% in the third quarter.  We expect Federal government spending to rise 3.3% this year as defense spending rises while non-defense spending is relatively unchanged.  Look for a further increase of about 3.5% in 2019.

Following GDP growth of  2.5% in 2017 we expect growth of  3.1% in 2018 given the individual and corporate tax cuts and some repatriation of earnings from overseas, and 2.8% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC


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