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GDP: 2nd Estimate Sees Increase in Consumption

November 29, 2016

Bottom Line: 3rd Quarter GDP was revised sharply higher as consumption was reported to have grown at 2.8% annualized in the quarter vs. 2.1% previously. The upward consumption revision was due to new information on "other" nondurable goods and motor vehicles and parts, as well as electricity usage. Residential fixed investment was also revised higher, less of a drag on GDP than previously reported, mostly due to upward revisions to single-family housing and improvements. Overall this indicates that the consumer finished the 3rd Quarter on a strong note.

GDP was REVISED UP by 0.3 points to 3.2% in this second estimate of economic activity for Q3-16. This was higher than market expectations for an upward revision to 3.0%.

Economic activity is now 1.6% ABOVE its year ago level and 11.4% ABOVE its 2007 Q4 cyclical peak. Because most of the adjustment was due to new September data, this revision suggests that the economic activity increased modestly at the end of the quarter.

Consumer Spending was revised higher by 0.63% to 2.8%, contributing 1.89% to economic growth. Business Fixed Investment was revised lower by -0.99% to 0.1%, contributing 0.02% to economic growth. Residential Investment was revised higher by 1.83% to -4.4%, contributing -0.17% to economic growth. Inventory Investment was revised slightly lower, contributing 0.49% to economic growth.

Net Exports were revised modestly higher with a no change in Exports and no change in Imports, contributing 0.87% to economic growth. Government Purchases were revised slightly lower but grew slightly for the 8th time in the past 12 quarters, contributing 0.05% to economic growth.

As a result of all of these changes, Real Final Sales were revised modestly higher while Real Domestic Demand was revised modestly higher. The GDP Price Index REVISED LOWER by -0.1 points to 1.4%, compared with market expectations of 1.5%. Economy-wide prices are now 1.3% ABOVE its year ago level.

Article by Contingent Macro Advisors