GDP: U.S. Economy Last Quarter Weaker Than Estimated

by Ike Obudulu Posted on June 28th, 2018

Washington, D.C., USA: The GDP data released by the Commerce Department on Thursday shows that U.S. first-quarter growth slowed more than estimated, weighed down by the weakest consumer spending in nearly 5 years.

Real Gross domestic product (GDP) increased at a 2.0 percent annual rate in the in the first quarter of 2018, the Commerce Department said on Thursday in its third estimate, instead of the 2.2 percent pace it reported last month. Economists had predicted gross domestic product would be unchanged.

The growth rate was 0.2 percentage point lower than the “second” estimate released last month. In the fourth quarter of 2017, real GDP increased 2.9 percent.

First quarter GDP highlights

The increase in real GDP reflected increases in business investment, consumer spending, exports, and government spending. Imports, which are a subtraction in the calculation of GDP, increased in the first quarter of 2018.

Revisions

The downward revision to the third estimate of GDP growth reflected downward revisions to inventory investment and consumer
spending. These were partly offset by an upwardrevision to business investment.

Prices

Prices of goods and services purchased by U.S. residents increased 2.7 percent in the first quarter after increasing 2.5 percent in the fourth quarter. Excluding energy and food, prices rose 2.6 percent after increasing 2.0 percent.

Corporate Profits

Corporate profits increased 1.8 percent at a quarterly rate in the first quarter of 2018 after decreasing 0.1 percent in the fourth quarter of 2017. Profits of domestic nonfinancial corporations increased 2.2 percent after increasing 1.5 percent. Profits of domestic financial
corporations increased 1.5 percent after decreasing 3.0 percent. Profits from the rest of the world increased 0.8 percent after decreasing 1.3 percent. Over the last 4 quarters, corporate profits increased 6.8 percent

GDP q/q primer

Current-dollar estimates are valued in the prices of the period when the transactions occurred—that is, at “market value.” Also referred to as “nominal estimates” or as “current-price estimates.”

Real values are inflation-adjusted estimates—that is, estimates that exclude the effects of price changes.

The gross domestic purchases price index measures the prices of final goods and services purchased by U.S. residents.

The personal consumption expenditure price index measures the prices paid for the goods and services purchased by, or on the behalf of, “persons.”

Profits from current production, referred to as corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj) in the NIPAs, is a measure of the net income of corporations before deducting income taxes that is consistent with the value of goods and services measured in GDP.

The IVA and CCAdj are adjustments that convert inventory withdrawals and depreciation of fixed assets reported on a tax-return, historical-cost basis to the current-cost economic measures used in the national income and product accounts. Profits for domestic industries reflect profits for all corporations located within the within the geographic borders of the United States.

The rest-of-the-world (ROW) component of profits is measured as the difference between profits received from ROW and profits paid to ROW.

Gross domestic product (GDP)

Gross domestic product (GDP) is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

Gross domestic income (GDI)

Gross domestic income (GDI) is the sum of incomes earned and costs incurred in the production of GDP. In national economic accounting, GDP and GDI are conceptually equal. In practice, GDP and GDI differ because they are constructed using largely independent source data. Real GDI is calculated by deflating gross domestic income using the GDP price index as the deflator, and is therefore conceptually equivalent to real GDP.

Why Markets Care About GDP q/q

GDP quarterly change (GDP q/q) measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy.

It is released quarterly by the Bureau of Economic Analysis of the Commerce Department about 85 days after the quarter ends

The usual effect is that is  ‘Actual’ greater than ‘Forecast’, the report is considered good for the dollar and vice versa.

While this is q/q data, it’s reported in an annualized format (quarterly change x4). There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact;

BEA releases three vintages of the current quarterly estimate for GDP: “Advance” estimates are released near the end of the first month following the end of the quarter and are based on source data that are incomplete or subject to further revision by the source agency; “second” and “third” estimates are released near the end of the second and third months, respectively, and are based on more detailed and more comprehensive data as they become available.

Gross Domestic Product (GDP) q/q is the broadest measure of economic activity and the primary gauge of the economy’s health.

Market reaction

The Dow Jones Industrial Average DJIA, -0.68% and the S&P 500 SPX, -0.86% were set to open higher in Thursday trades. The 10-year Treasury yield TMUBMUSD10Y, +0.10% was little changed at 2.83%.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
Phone
Email

Leave a Reply