Saturday, October 29, 2016

GDP still growing, but not as great as 2.9% headline

Here are a few of my reactions from yesterday's GDP Report, now that we’re all calming down from James Comey’s partisan leak of an absolute nothingburger (and yes, I think it was total bullshit done to help Republicans).

The topline of the GDP report is really good- 2.9% quarterly growth is the best we’ve had in 2 years- and it at least allays any fears we might be stalled out and/or in recession. But breaking out the report into the various parts indicates things really didn’t change all that much from what we had before, with the exception of a few key areas.

First of all, the growth in Consumption was actually cut in half during Q3, going from 4.3% in Q2 to 2.1% in Q3. So how did overall GDP growth accelerate so much, given that Consumption is more than 2/3 of the overall economy? Because other sectors had nice rebounds, after not doing much for the economy in the first 6 months of the year.

Contributions to GDP, 2016
Q1 2016 -0.56%
Q2 2016 -1.34%
Q3 2016 +0.52%

Federal government spending
Q1 2016 -0.10%
Q2 2016 -0.01%
Q3 2016 +0.17%

Net Exports
Q1 2016 -0.09%
Q2 2016 +0.18%
Q3 2016 +0.83%

The net exports figure is especially interesting, as exports went up by more than $51 billion from Q2, with almost all of that increase in goods, where we usually run a deficit. And the goods increase largely stems from one product- soybeans.
Some nine-tenths of a percentage point of the gain came from a surge in soybean exports, much of which was shipped to China, an event that won't be repeated in coming quarters.

That may not sound like a lot. But nine-tenths of a percent of an $18.6 trillion economy works out to $167 billion. That's roughly the size of Iowa's annual economic output.

U.S. farmers are on track for a record soybean harvest of more than four billion bushels. At the same time, a poor harvest in Brazil boosted demand for the U.S. crop from big importers like China.
But it's a nice one-time blip to have in trade, because the US has been facing troubles due to its strong dollar, helping lead to that decrease in GDP in 2015 and early 2016.

Another reason for the big GDP number is restocking of store shelves in America, which also is a reversal from the early part of the year.

Change in inventories
Q1 2016 -0.41%
Q2 2016 -1.16%
Q3 2016 +0.61%

In fact, when you remove inventories from the equation, the story of GDP growth is a different - while we are quite a bit above the slow Q1, we actually declined from “final sale” figures for Q2, and the growth trend has gone down a bit in the last 2 years.

Combine these stats with job growth in 2016 that falls into the “decent but not as strong as the past 2 years”, and I don’t think the story on the direction of the US economy has changed much with this report. Still solid but not great growth- not booming, but also not in recession.

And let's not forget that this is a helluva lot better than we were at this time 8 years ago, when GDP fell by 1.9%, and was going to collapse by 8.2% in the last quarter of 2008. I’ll take where we are today vs the last time we were on verge of picking a new president, and let’s make sure we choose wisely, and don’t go back to those policies, shall we?

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