Tuesday, 26 of September of 2017

Economics. Explained.  


August 30, 2017

The initial estimate of second quarter GDP growth a month ago came in at 2.6% but the first revision boosted that figure to the 3.0% mark.  That compares to a 1.2% pace in the first quarter.

Final sales, which is GDP excluding the change in business inventories grew at a 3.0% pace in the second quarter compared to a 2.7% rate in the first quarter.   Over the past year final sales have risen 2.3%.  In the second quarter inventories rose $1.8 billion compared to an increase of $1.2 billion in the first quarter.  Thus, inventories were essentially unchanged in both quarters.  And with such a small change, inventories had no impact on  GDP growth in the second quarter.  However, inventories will not remain relatively unchanged for long.  They will rebound somewhat in the quarters ahead which will boost GDP growth in the second half of the year.

Final sales to domestic purchasers excludes both the change in inventories and trade rose 2.7% in the second quarter versus an increase of 2.4% in the first quarter.  Over the past year this series has risen at a 2.4% pace.  The deficit for net exports narrowed by $8.8 billion which means that the trade component added 0.3% to GDP growth  in the second  quarter as exports rose 3.7% while imports climbed by 1.6%.

Consumption spending jumped 3.3% in the second quarter versus an increase of 1.9% in the first quarter.  We expect the pace of consumer spending to remain steady and  increase 2.7% 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.

Nonresidential investment climbed by 6.9% in the second quarter after having increased 7.2% in the first quarter.  We expect nonresidential invest to  increase 5.6% in 2017 and  4.9% 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.

Residential investment declined 6.5% in the second quarter after having jumped 11.1% in the first quarter and 7.1% in the fourth quarter of last year.   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 2.5% in 2017.

The foreign sector as measured by the deficit for real net exports narrowed by $8.8 billion in the second quarter to $613.4 after having narrowed by $8.9 billion in the first quarter.  Exports rose 3.7% while imports rose by 1.6%.  We expect the deficit for net exports to add 0.2% to GDP growth in 2017.

Federal government spending rose 1.9% in the second quarter after having fallen 2.4% in the first quarter.  Federal government spending is expected to rise 0.8% in 2017 as President Trump increases defense spending while non-defense spending is relatively unchanged.

We expect GDP growth of  2.4% this year, and 2.8% in 2018 given expected individual and corporate tax cuts and some repatriation of earnings from overseas.

Stephen Slifer


Charleston, SC

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