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GDP Growth a Bit of a Surprise

L: For reasons unknown, GDP numbers in the first quarter of each of the last eight years have been pitifully low in comparison to the other three quarters. This quarter wasn't great, but it wasn't pitifully low either.

J: On April 27, the BEA gave us the first ("Advance Estimate") data on how the overall US economy performed in the first three months of 2018. They said real GDP grew at a seasonally adjusted annual rate of 2.3 percent from the last quarter of 2017.

As the chart shows, that was the best first quarter performance since the 3.2 percent growth seen in the first quarter of 2015. It was certainly far better than the decline of 1.5 percent in the first quarter of 2011 or the 0.9 percent drop in the first quarter of 2014 or the anemic growth of 0.6 percent in the first quarter of 2016.

As the next chart shows, the level of real GDP in the first quarter was 2.9 percent higher than in the first quarter of 2017. That's a higher year-over-year increase than any other first quarter since the last recession ended in June 2009 except for the sterling 3.8 percent racked up in 2015.

In a relatively unusual development, all four major components of GDP make positive contributions to the growth rate in the first quarter. Personal consumption expenditures (PCE) added 0.73 percentage points, the lowest share since the 0.58 percentage points in the second quarter of 2013.

Gross private domestic investment added 1.19 percentage points to real GDP growth in the first quarter. This included 0.76 percentage points from fixed investment and 0.43 percentage points from the change in private inventories.

Real net exports added 0.20 percentage points. Exports added 0.59 percentage points and imports subtracted 0.39 percentage points. It's possible imports were held down somewhat by the timing of Chinese New Year's Day (February 16). We'll have to wait for another month or two of trade data to know for sure.

Government consumption expenditures and gross investment also added 0.20 percentage points. The federal government added 0.11 percentage points while state and local governments added 0.09 percentage points.

Nearly all economic forecasters expect consumers to pick up their spending this quarter. Real PCE grew at a 4.0 percent pace in the fourth quarter of 2017 and by 2.9 percent for the whole year. It only rose by 1.1 percent in the first quarter.

The first revision ("Second Estimate") of all these data will be released by the BEA on May 30. On July 27 they will release the first estimates for the second quarter along with revisions of ALL the quarterly and annual data beginning with the first quarter of 2012.

Because they are shifting the base year for all output and prices measures from 2009 to 2012, they will actually give us new annual real GDP data all the way back to 1929 and quarterly data all the way back to 1947. That will give economic forecasters and other analysts a great deal of new data to delve into for new insights.

L: These MAJOR revisions of historic economic data happen fairly frequently. It's a crazy thing for those of us who are not economists. The main reasons it happens are they change the methods or sources for collecting particular data, they change the way they define certain categories of data (what goes where), and/or they literally change what they are reporting on.

And as long as we're on the topic, I suppose I may as well also point out that there are more than a few people who think that GDP is no longer a very useful measure of economic performance. Here's an article from The Economist that addresses that.

J: Be watching for new insights from these new data. It will be fascinating. Here's a link if you want details on what the BEA has planned for these comprehensive revisions.


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