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Economy in Brief

U.S. GDP Growth Revised Upward; Corporate Profits Decline
by Tom Moeller  March 28, 2018

In the third estimate of Q4'17 real GDP, the U.S. economy grew 2.9% (AR), more than 2.5% estimated in the second report and 2.6% in the advance estimate. It followed a 3.2% Q3 rise and a 3.1% Q2 gain. Growth picked up from Q4-to-Q4 to 2.6%, its quickest advance in three years. The gain compared to 2.7% expected in the Action Economics Forecast Survey.

Corporate profits without inventory & capital consumption adjustments fell 9.6% (-6.0% y/y), the second decline in three quarters. Before tax profits with IVA and CCA eased 0.1% (+2.7% y/y) after a 4.3% increase. Nonfinancial profits improved 1.5% (7.7% y/y) following a 0.8% rise. Financial sector earnings declined 3.0% (-41.4% y/y) after a 10.8% jump. Foreign sector profits fell 1.3% (+1.4% y/y), the third decline in four quarters.

Inventories subtracted a lessened 0.53 percentage point from GDP growth last quarter, compared with -0.70 in the last report. Deterioration in the foreign trade deficit subtracted a slightly higher 1.16 percentage point. That subtraction was due to a 7.0% gain (5.0% y/y) in exports which was outpaced by a 14.1% rise (4.7% y/y) in imports.

Domestic final sales increased at an increased 4.5% rate (2.9% y/y), the quickest gain since Q3'14. Personal consumption expenditures rose an upwardly revised 4.0% (2.8% y/y), the strongest gain since Q2'16. The figure reflected a 13.7% surge (7.3% y/y) in durable goods spending, prompted by a 19.0% jump (5.0% y/y) in spending on motor vehicles, following a 12.2% rise. Outlays on home furnishings & appliances strengthened 13.1% (8.9% y/y) after roughly 9.0% growth during the prior six months. Outlays on recreational products & motor vehicles surged 12.8% (9.2% y/y) following a 0.8% rise. Nondurable goods spending improved a raised 4.8% (3.1% y/y) as outlays on gasoline & other energy products rose 0.1% (-0.1% y/y), compared to the earlier estimate of a 3.7% decline. Apparel strengthened 10.6% (3.9% y/y) following declines in two of the prior three quarters. Food & beverage spending gained 6.8% (2.9% y/y). Spending on services improved 2.3% (2.1% y/y) following a 1.1% rise. Spending on housing & utilities improved 2.1% (1.3% y/y) after falling in three of the prior four quarters. Health care spending strengthened 2.5% (2.6% y/y) after a 4.5% rise. Recreation services outlays eased 0.9% (+1.3% y/y). Food services & accommodations spending improved 0.7% (1.2% y/y) after a 1.9% rise.

Capital spending increased an upwardly revised 6.8% (6.3% y/y), its fourth consecutive quarter of strong increase. Spending on equipment rose 11.5% (8.9% y/y), its fifth consecutive increase. Information processing equipment investment improved 8.4% (9.5% y/y) after a 10.8% gain while intellectual property product outlays rose a lessened 0.9% (3.9% y/y) after a 5.2% increase. Investment in industrial equipment gained 4.6% (7.9% y/y) following several quarters of strong increase. Investment in new structures rose a strengthened 6.3% (5.0% y/y) following strength in two of the last three quarters.

Residential investment increased a slightly lessened 12.8% (2.6% y/y) following declines in the prior two quarters.

Government spending improved 3.0% (0.7% y/y) after six straight quarters of near zero growth. Outlays by the federal government increased 3.2% (1.0% y/y) after two quarters of lesser gain. Defense outlays surged 5.5% (2.3% y/y), the strongest of three quarterly increases. Nondefense outlays were flat or declining for all of last year. State & local government spending improved 2.9% (0.5% y/y) in Q4, the only notable quarterly gain since Q1'16.

The GDP chain price index increased an unrevised 2.3% (1.9% y/y), the strongest rise since Q2'16. A 2.3% rise was expected. Growth in the PCE price index of 2.7% (1.7% y/y) was the strongest rise since Q2'11. It reflected a 3.2% jump (2.3% y/y) in the services price index. The goods PCE price index rose 1.8% (0.4% y/y) after a 0.7% rise. The business fixed investment price index rose 0.6%, with the 1.3% y/y increase following a slight decline in 2016. The residential investment price index gained 2.5% (3.3% y/y) following strength in three of the last four years. The government price index rose 2.9% y/y in 2017 after little gain during the prior two years.

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

Chained 2009 $ (%, AR) Q4'17 (Third Estimate) Q4'17 (2nd Estimate) Q4'17 (Advance Estimate) Q3'17 Q2'17 Q4'17 Y/Y 2017 2016 2015
Gross Domestic Product 2.9 2.5 2.6 3.2 3.1 2.6 2.3 1.5 2.9
  Inventory Effect -0.53 -0.70 -0.67 0.8 0.12 0.3 -0.1 -0.4 0.3
Final Sales 3.4 3.3 3.2 2.4 2.9 2.9 2.4 1.9 2.6
  Foreign Trade Effect -1.16 -1.1 -1.1 0.5 0.2 0.0 -0.1 -0.2 -0.7
Domestic Final Sales 4.5 4.3 4.3 1.9 2.7 2.9 2.5 2.1 2.3
Demand Components
  Personal Consumption Expenditure 4.0 3.8 3.8 2.2 3.3 2.8 2.7 2.7 3.6
  Business Fixed Investment 6.8 6.6 6.8 4.7 6.7 6.3 4.7 -0.6 2.3
  Residential Investment 12.8 13.1 11.7 -4.7 -7.3 2.6 1.8 5.5 10.2
  Government Spending 3.0 2.9 2.9 0.7 -0.2 0.7 0.1 0.8 1.4
Chain-Type Price Index
  GDP    2.3 2.3 2.4 2.1 1.0 1.9 1.8 1.3 1.1
   Personal Consumption Expenditures 2.7 2.7 2.8 1.5 0.3 1.7 1.7 1.2 0.3

     Less Food & Energy

1.9 1.9 1.9 1.3 0.9 1.5 1.5 1.8 1.3
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