The US Economy as of September 2019

The US government reported the most recent statistics for national output or what is called real Gross Domestic Product (GDP). Much of the attention, as usual, focused on the numbers for the most recent quarter. In October, the main news was about the third quarter of 2019. The Bureau of Economic Analysis reports the latest updates for the previous quarters as well.

This report is, therefore, news, and it get a lot of attention. Like when a runner hits the third lap of a four lap race, it can be very critical how fast she runs that third lap. That might tell you a lot about how fast she will run the last lap and therefore how she might finish the race.

But "might" is the key word in that last sentence. Maybe she ran too fast in the third lap and is going to poop out. Or maybe she ran a fast third lap and is accelerating.

And so it goes with real GDP. We examine the third quarter for signs that we are pooping out or accelerating or maybe just in a holding pattern.

It is fun and exciting to look at those three quarters for patterns. But try as you might, you cannot really forecast the fourth quarter and the year with those three numbers. It is a fool's game, really.

So today I want to take a slightly better approach. Let's just average the three quarters we know about 2019 and compare that to what happened to 2018 for signs of what might come.

The table below takes data from the BEA report and organizes it for my purpose. The first column has the average number for all four quarters of 2018. There you see that US real GDP rose by 2.9 percent in 2018. Then you see the next three quarters of change in 2019. After those columns is the average of the first three quarters of 2019 or 2.3 percent.

The final column shows you how much slower (negative sign) or how much faster (positive sign) real GDP grew in 2019 compared to 2018. The -0.6 says GDP has been growing about a half a percent slower in the first three quarters of 2019 compared to the four quarters of 2018. That might be something to fret about -- slower growth. But it is not a huge decline and is clearly not a recession. I looked up the numbers for 2016 and 2017 and it turns out real GDP averaged 2.0 percent in those two years.

So just concentrating on real GDP -- the big picture -- it does not look like much has changed after we received third quarter 2019 numbers.

The remainder of the lines contain the data for the main components of real GDP. Notice that all the numbers in the last column that showed increases were in the federal (defense and non-defense) and state and local government areas. Government spending grew faster in 2019 compared to 2018.

In contrast, the private sector did worse in 2019. PCE or consumer spending barely declined but notice what we call national investment was almost 6 percentage points lower in 2019. Of course, thanks to a trade war, both imports and exports slowed considerably in 2019.

Many things could happen to make the fourth quarter of 2019 quite different from the first three quarters. The comparison of 2019 to 2018 might be quite different when we learn about the fourth quarter in January. But for now there seems to be a pretty clear picture of change.

Overall growth is down because firms and households have decided to invest less in equipment, structures, and new housing. And a trade war is harming exports and imports. I will meet you back at the pass to see if any of this changed in January.

	2018	2019			2019*
		Q1	Q2	Q3	Avg	Diff**
GDP	2.9	3.1	2	1.9	2.3	-0.6
PCE	3	1.1	4.6	2.9	2.9	-0.1
GPDI	5.1	6.2	-6.5	-1.5	-0.6	-5.7
Exports	3	4.1	-5.7	0.7	-0.3	-3.3
Imports	4.4	-1.5	0	1.2	-0.1	-4.5
Defense	3.3	7.7	3.3	2.2	4.4	1.1
NonDefen	2.4	-5.4	16.1	5.2	5.3	2.9
S&L	1	3.3	2.7	1.1	2.4	1.4
Real GDP Statistics from Bea.gov
* Average of first three quarters
**2019 average minus 2018