BEA Revises 4th-Quarter GDP to 2.2% from 2.6%: Long, Very Weak Recovery

Economists got one right, but don't give them too much credit. It was pretty clear fourth-quarter GDP would be revised lower.

Real Gross Domestic Product (GDP) increased at an annual rate of 2.2 percent in the fourth quarter of 2018 according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.4 percent.

Real gross domestic income (GDI) increased 1.7 percent in the fourth quarter, compared with an increase of 4.6 percent in the third quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 1.9 percent in the fourth quarter, compared with an increase of 4.0 percent in the third quarter.

Consumer Metrics

Rick Davis at the Consumer Metrics Institute offers these insights.

The downward revision in the headline number was driven by weaker estimates of the growth in the consumption of consumer goods (down -0.26pp from the previous report), weaker fixed investments (down -0.15pp from the previous report) and governmental spending (down -0.14pp from the previous report). The rest of the revisions were statistical noise, except for an upward +0.11pp revision to imports.

Household disposable income was reported to be up +$391 per annum on a quarter over quarter basis, and the household savings rate was reported to be 6.8% (up +0.4pp from the prior quarter).

Notable Items

• The headline contribution from consumer expenditures for goods was reported to be +0.54%, down -0.26pp from the previous report and down -0.36pp from the prior quarter.

• The contribution to the headline from consumer spending on services was reported to be +1.12%, up +0.01pp from the previous report, but down -0.35pp from the prior quarter. The combined consumer contribution to the headline number was reported to be down -0.71pp from the prior quarter, marking the second consecutive quarter of weakening growth in consumer spending.

• The headline number for commercial/private fixed investments was reported to be +0.54%, down -0.15pp from the previous report but still up +0.33pp from the prior quarter.

• Inventories boosted the headline number by +0.11%, down -2.22pp 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 pricing or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

• Surprisingly, the growth in governmental spending continued to weaken significantly, reducing the headline number by -0.07% (down -0.14pp from the previous report and -0.51pp from the prior quarter). The bulk of the contraction was in state and local capital expenditures and Federal non-defense spending.

• The previous estimate's growth in exports was revised upward by another +0.03pp to +0.22%.

• Imports also strengthened the headline number, improving +0.11pp from the previous report. In aggregate, foreign trade negatively impacted the headline number by only -0.08pp, a full +1.91pp better than 3Q-2018.

• The annualized growth in the "real final sales of domestic product" dropped to +2.05%, but that was up +1.02pp from the prior quarter. This is the BEA's "bottom line" measurement of the economy (and it excludes the inventory data).

Real Final Sales

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That last bullet point is the most important one. The bottom line assessment is real GDP was up 2.05%. Inventories net to zero over time.

This has been a very long recovery. It's also been a very weak one. Recession clouds strengthen.