In their second estimate of the US GDP for the fourth quarter of 2017, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.53% annual rate, down -0.01% from their previous estimate and down -0.63% from the prior quarter. 

This report contains no material revisions. The largest change consisted of the shifting of 0.15% growth from consumer goods spending to consumer services spending. Otherwise, no line item in the report changed by more than +/- 0.03%. The BEA’s “bottom line” for the quarter (their “Real Final Sales of Domestic Product”, which excludes inventories) increased slightly to +3.23%, up +0.02% from the previous estimate and +0.86% from the prior quarter. 

Real annualized household disposable income improved +$12 per year from the previous report to $39,225 (in 2009 dollars). The household savings rate improved marginally to 2.7%, the same low level recorded in third quarter of 2007 — at the onset of the “Great Recession.” 

For this revision, the BEA assumed an effective annualized deflator of 2.34%. During the same quarter (October 2017 through December 2017) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was a very similar but slightly higher 2.49%. Underestimating inflation results in optimistic growth rates, and if the BEA’s “nominal” data was deflated using CPI-U inflation information the headline growth number would have been slightly lower at a +2.44% annualized growth rate. 

Among the notable items in the report : 

— The headline contribution from consumer expenditures for goods dropped to +1.61%, down -0.15% from the +1.76% previously reported (although still up +0.64% from the prior quarter). 

— The contribution to the headline from consumer spending on services exactly offset the revision to the consumer goods number, increasing +0.15% to +0.97%. The combined consumer contribution to the headline number remained at +2.58%, up a +1.09% from 3Q-2017. 

— The headline contribution from commercial private fixed investments was revised upward slightly (+0.02%) to +1.29%, up +0.89% from the prior quarter. 

— Inventories subtracted -0.70% from the headline number after adding +0.79% in the prior quarter (a swing of -1.49%). It is important to remember that the BEA’s inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long-term essentially zero-sum) series. 

— Governmental spending added +0.49% to the headline number, down -0.01% from the previous report. 

— Exports contributed +0.84% to the headline number, up +0.59% from the prior quarter. 

— Imports subtracted -1.97% from the headline number, down -0.01% from the previous report and a drop of over two percent (-2.08%) from the prior quarter. In aggregate, foreign trade subtracted -1.13% from the headline number. 

— The “real final sales of domestic product” grew was revised upward slightly to an annualized 3.23%, up +0.86% from the prior quarter. This is the BEA’s “bottom line” measurement of the economy and it excludes the inventory data. 

— As mentioned above, real per-capita annual disposable was reported to have grown +$12 per annum from the previous report and +$32 per annum from the 3rd quarter number. The household savings rate was reported to be 2.7% (down -0.7% from the prior quarter and down a full percent from 2Q-2017). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +6.95% in aggregate since the second quarter of 2008 — a meager annualized +0.71% growth rate over the past 38 quarters.