The US Bureau of
Economic Analysis (BEA) reports Gross Domestic Product
on a quarterly basis. The
most recent report came out on Friday, October 26. They like to put it out on
Friday morning to ruin the weekend for most us. Who said economics is not
the dismal science?
Luckily, they perform
this ritual only once a quarter. This adds to the excitement – we have to wait
three whole months to find out how the economy did. On October 26, we found out how much the US economy produced in the third quarter. Tuna – the third
quarter is not a football game. It is July, August, and September.
In the October 26 report, we learned
that we produced $20.7 trillion worth of goods and services valued at current
prices. If we valued that mountain of stuff at constant (2012) prices, we say that Real GDP was $18.7 trillion in the
third quarter of 2018. Real GDP is a measure of how much got produced so we
usually focus on that amount. The press release reported that the $18.7
trillion was 3.5% higher than in the previous quarter on an annualized basis. It also reported that
the $18.7 trillion was 3% higher than in the third quarter of 2017.
Already your eyes are
starting to glaze over and you are reaching for your JD. But hold on. This is
cool stuff. The 3.5% one-quarter change is a little like the Colts kicking a
field goal against the Pats at the end of the third quarter. Since I haven’t
told you the full score, you don’t know very much. The 3.5% rate for the third quarter has meaning
but it doesn’t tell you enough. The 3.0% is a little more helpful since it is
basically telling you how the economy has been doing over a whole year.
But even that isn’t enough
if what you want to know is how the economy did in 2018 compared to how it did in 2017. Are we slowing down? Speeding up? For that we have to live another quarter and wait until the magic date
near the end of January. At that time we will know the fourth quarter
and the whole year.
But we can get close
today if we compare the sum of the first three quarters of 2018 to the sum of the first
three quarters of 2017. The numbers in the table below show that real GDP rose by
2.5% in the three quarters of 2018 compared to the fourth quarter of 2017. The
1.9% says the economy grew by 1.9% from the end of 2016 to the third quarter of
2017. The 0.6% shows that growth in the first three quarters of 2018 was higher
than the same period in 2017. We can conclude that the economy grew faster
in 2018 than it grew in 2017.
The table includes all
the key parts of real GDP -- so we can look deeper into what were the
strong/weak sources of that growth increase. As you move your finger down the
CHG column, look for the biggest positive numbers:
- The biggest number is the 4.0 for intellectual property rights. After growing at 4% in the first three quarters of 2017, this category grew by 8% in the first three quarters of 2018.
- The 3.3% for net exports means the opposite of how it looks. It is telling us that net exports got more negative in 2018 compared to 2017, because exports of goods slowed while our imports of goods increased. This is a subtraction from output!
What other categories were stronger in
2018 than 2017? The 2.8% for national defense spending was one; the 2.2% for business structures was another.
Among the categories that grew slower in 2018 than in 2017 were:
-3.7%
Business Fixed Investment: Equipment
-3.3%
Residential investment
-1.2% Consumer Durable goods
-1.5%
Exports of Services
-0.4%
Exports of goods
As we think about the final months of 2018 and 2019, it helps to think how the first three quarters of 2018 went. The big winner was business spending on intellectual property. Business also revved up spending on structures but equipment spending slowed dramatically. Consumer spending on durable goods also declined in 2018 and our exports of goods and services geared down. The trade balance was a larger drag on the economy.
It is very clear that many of the important drivers of economic growth were contributing much less in 2018 compared to 2017. It will be interesting to see how the fourth quarter changes this picture. Will all of 2018 turn out to be better than all of 2017?
As we think about the final months of 2018 and 2019, it helps to think how the first three quarters of 2018 went. The big winner was business spending on intellectual property. Business also revved up spending on structures but equipment spending slowed dramatically. Consumer spending on durable goods also declined in 2018 and our exports of goods and services geared down. The trade balance was a larger drag on the economy.
It is very clear that many of the important drivers of economic growth were contributing much less in 2018 compared to 2017. It will be interesting to see how the fourth quarter changes this picture. Will all of 2018 turn out to be better than all of 2017?
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Dear LSD. Thanks for the detail . . . provides much more insight than Larry Kudlow and Mick Mulvaney. You ought to forward your CV to DJT @ WH.
ReplyDeleteYou are a kind can of tuna. But I cannot imagine anything worse that working with politicians...sort of like fingernails on a blackboard. I love the autonomy of being able to spout off when the urge hits me. :-)
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