The annualized Gross Domestic Product (GDP), growth rate in the third estimate of the first quarter (Q1), of 2017 was revised upwards to 1.4%. This was a 0.2 point upward revision from the first estimate and a 0.7 point upward revision from the dismal 0.7% first estimate. The largest drivers were durable goods spending and investment in structures. A drop in defense spending together as well a reduction in inventory investment had a negative effect. Measurement issues and seasonal effects were cited as reasons for the large revisions.
GDP is a measure of the total production and consumption of goods and services in the U.S. This is the broadest measure of economic output. The Bureau of Economic Analysis (BEA), constructs two complementary measures of GDP, one based on income and one based on expenditures. GDP is measured and reported in chained 2009 dollars. The growth calculation is misleading because it takes the Q over Q change and multiplies by 4 to get an annualized rate. This makes the high quarters higher and the low quarters lower.
The six major components that add to make up the headline GDP number include: Personal consumption, Fixed Non-residential investment, Fixed Residential investment, Inventories, Net exports and Government. Personal consumption contributed 0.75 points, Fixed Non-residential investment contributed 1.23 points, Fixed Residential investment contributed 0.48 points as Inventories subtracted -1.11 points. Inventory accumulation slowed sharply in Q1, which was a big drag on growth but a positive looking forward. Trade had little impact on growth as Net exports contributed 0.23 point. Government spending was a slight drag, pulling GDP down by -0.16 points.
Figure 1 shows the headline quarterly results since 2007 and the January International Monetary Fund (IMF), forecast through for 2017. The IMF forecast for the year 2017 is 2.3% GDP growth.
The US economy has been expanding 8 years now, the third longest expansion on record. Trend growth in the economy remains at the pace it has kept throughout its long expansion. Real GDP growth of approximately 2% and job gains of about 200,000 per month. Keep in mind that it is typical for Q1 GDP to be weaker than subsequent quarters. The US economy is showing broad growth as evidenced from the widespread job creation. Even jobs in the energy sector and other commodity-based industries, which were severely impacted by massive price reductions are making a solid comeback. An expansive base helps stabilize economic growth resulting in a longer expansion.
Looking ahead, the Federal Reserve Bank of Atlanta used a forecasting model to predict future GDP growth. Its latest forecast (today June 30th), for Q2 is 2.7%, revised downward by 0.2 points from its June 26th forecast as a result of weaker net exports.
At Gerdau we regularly evaluate the quarterly BEA GDP report to get a read on current economic strength as well as a “read” on the likely short-run future.