Wednesday, 17 of October of 2018

Economics. Explained.  

GDP

September 27, 2018

The final revision to second quarter GDP came in at 4.2% compared to 2.2% growth rate in the first quarter.  For 2017 as a whole GDP rose 2.5%.  We expect GDP growth of 3.1% this year.  .

Final sales, which is GDP excluding the change in business inventories surged 5.4% in the second quarter having having risen rose 1.9% in the first quarter.   Over the past year final sales have risen 3.0%.  In the second quarter inventories  actually declined  $36.8 billion after increasing $30.3 billion in the first quarter.  Thus, inventories  subtracted 1.2% from GDP growth in the second quarter.  Inventories are expected to rise by roughly $10 billion per quarter in the quarters ahead.

Final sales to domestic purchasers excludes both the change in inventories and trade rose by 4.0% in the second quarter after having risen 1.9% in the first quarter.  Over the past year this series has risen at a 2.9% pace.  The deficit for net exports narrowed by $61.4 billion in the second quarter which means that the trade component added 1.4% to GDP growth in the second quarter as exports surged by 9.3% while imports declined by 0.6%.

Consumption spending rose 3.8% in the second quarter after having risen 0.5% in the first quarter.  We expect the pace of consumer spending to remain steady and  increase 2.4% in 2018.  Solid employment gains should boost  income.  A rebound in the stock market and an increase in house prices will boost net worth.  Expected individual income tax cuts should further stimulate spending.  Everything related to the consumer seems quite solid.

Nonresidential investment climbed by 8.7% in the second quarter after having jumped by 11.5% in the first quarter.  For 2017 nonresidential investment climbed 6.3%.  We expect nonresidential investment to  increase 8.1% in 2018 as business regains confidence in the wake of expected corporate tax cuts, relief from an onerous regulatory burden,  and some repatriation of earnings from overseas.

Residential investment declined 1.3% in the second quarter after having fallen 3.4% in the first quarter.   For 2017 as a whole residential investment rose 3.8%    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 0.3% in 2018.

The foreign sector as measured by the deficit for real net exports narrowed by $61.4 billion in the second quarter to -$841.0 billion after having widened by $3.2 billion in the first quarter.  Exports rose 9.3% in the first quarter while imports declined 0.6%.  We expect the deficit for net exports to add 0.4% to  GDP growth in 2018.

Federal government spending rose 3.7% in the second quarter after having risen 2.6% in the first quarter.  Federal government spending is expected to rise 3.2% in 2018 as President Trump increases defense spending while non-defense spending is relatively unchanged.

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.

Stephen Slifer

NumberNomics

Charleston, SC


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