GDP

September 26, 2019

The final estimate of second quarter GDP growth came in 2.0% which is identical to the estimate made one month ago, and compares to an initial estimate of 2.1% and a first quarter GDP growth of 3.1%.  Thus, GDP growth in the first half of this year averaged a solid 2.6%  For 2018 as a whole GDP rose 2.5%.  We  expect GDP growth of 2.5% in 2019 and 2.4% in 2020.

Final sales, which is GDP excluding the change in business inventories rose 3.0% in the second quarter after having risen 2.6% in the first quarter.   Over the past year final sales have risen 1.8%.  In the second quarter inventories rose $69.4 billion after having jumped $116.0 billion in the first quarter. Thus, inventories  subtracted 1.0% from GDP growth in the second quarter.  Inventories are expected to rise $70.0-80.0 billion in the final two quarters of the year.

Final sales to domestic purchasers excludes both the change in inventories and trade rose by 3.6% in the second quarter after having risen 1.8% in the first quarter.  In the second quarter the deficit for net exports widened by $36.7 billion from $944.0 billion to $980,7 billion.   In that quarter exports declined 5.7% while imports were unchanged.  Given that final sales to domestic purchasers rose 3.6% while final sales rose 3.0%,  it is clear that the trade component subtracted 0.6% from GDP growth in the second quarter.  Over the past year this series has risen at a 2.3% pace.

Consumption spending jumped 4.6% in the second quarter after having risen 1.1% in the first quarter.  Steady employment gains of about 170 thousand per month continue to boost  income.  The consumer has little debt.  And interest rates remain relatively low.  Everything related to the consumer seems quite solid.  We expect growth in consumer spending of 2.8% this year.

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Nonresidential investment fell 1.0% in the second quarter after having risen  4.4% in the first quarter.  For 2018 nonresidential investment climbed 5.9%.  We expect nonresidential investment to  increase  2.7% in 2019 as uncertainty about GDP growth in the quarters ahead for both in and outside the U.S. has caused business leaders to become more cautious.

Residential investment fell by 3.0% in the second quarter after having declined 1.0% in the first quarter.   But sales appear to leveling off after a long slide and are expected to increase slightly in the third quarter.   While demand for housing remains robust,  builders are having a difficult time finding qualified workers which curtails growth in this category.   Nevertheless, we expect residential investment to decline 0.3% in 2019.

The foreign sector as measured by the deficit for real net exports widened by $36.7 billion in the second quarter from $944.0 billion to $980.7 billion.   In that quarter exports fell 5.7% while imports were unchanged.  We expect the deficit to widen slightly for the balance of the year.  If that is the case the trade component will subtract 0.2% from GDP growth in 2019.

Federal government spending jumped 8.3% in the second quarter after having risen 2.2% in the first quarter.  We expect Federal government spending to rise 4.1% this year as defense spending rises sharply while non-defense spending climbs by a moderate amount.

Following GDP growth of  2.5% in 2018 we expect growth of  2.5% in 2019 and 2.4% in 2020.

Stephen Slifer

NumberNomics

Charleston, SC