Real gross domestic product (GDP) increased at an annual rate of 3.4 percent in the third quarter of 2018 according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.2 percent.

GDP only changed 0.1%, but real final spending dropped another 0.2% as the BEA revised inventories higher, again.

Rick Davis at Consumer Metrics explains.

In their third and final estimate of the US GDP for the third quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +3.36% annual rate, down -0.14% from their previous estimate and down -0.80% from the prior quarter.

Although the revisions can be characterized as statistical noise, they generally reinforce several key movements in the economy since the second quarter: consumer spending, commercial spending and exports were revised lower, while inventories were yet again revised upward. As a consequence, the BEA's "bottom line" measurement of the economy (the "real final sales of domestic product") was revised downward by another -0.20% (to only +1.03%), and it is now down by well over four percent (-4.30%) from the prior quarter.

The total headline contribution from consumer spending was revised downward another -0.08%, and it is now down -1.06% from the prior quarter. The growth in commercial fixed investment was revised downward -0.04%, while government spending was unchanged. Foreign trade was revised a combined -0.08% downward, and it is now removing -1.99% from the headline number (off -3.21% from the prior quarter).

And continuing the prior trend, the headline number has been propped up even more by the most fickle of the BEA's data items: inventories; which are now adding +3.50% more to the headline than they did during the prior quarter. Meanwhile, household disposable income and the household savings rates were left unchanged.

Point of Clarification


In many places Davis means percentage points when he says percent.

For example, "and it is now down by well over four percent (-4.30%) from the prior quarter" should actually read, "and it is now down by well over four percentage points (-4.30 PP) from the prior quarter."

Quarterly Changes

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The key point is that real final spending, the true bottom line measure of the economy, was only +1.03%.

The upward revisions to inventories is easily explained: Fearing Trump Tariff Escalation, Retailers Pile Up Goods at Unprecedented Pace.

Mike "Mish" Shedlock

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