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GDP  
Released On 11/28/2018 8:30:00 AM For Q3(p):2018
PriorConsensusConsensus RangeActual
Real GDP - Q/Q change - SAAR3.5 %3.5 %3.3 % to 3.7 %3.5 %
GDP price index - Q/Q change - SAAR1.7 %1.7 %1.4 % to 1.7 %1.7 %
Real Consumer Spending - Q/Q change - SAAR4.0 %3.7 %3.5 % to 3.9 %3.6 %

Highlights
Two wildcard components are slightly more exaggerated in the third quarter's revised GDP data while readings on the consumer and housing are mixed. At the headline level, the second revision to third-quarter GDP is unrevised at a very strong 3.5 percent annualized growth rate but inventories, contributing 2.27 percentage points to the total, added a little more than the first revision while net exports, subtracting 1.91 points, pulled down GDP by a little more.

Consumer spending's growth rate of 3.6 percent is 4 tenths below the first estimate and 1 tenth below Econoday's consensus with its contribution nearly 2 tenths lower at 2.45 points. Still this is the third straight contribution in the mid 2 point range. Residential investment pulled down third-quarter GDP but, at minus 0.10, slightly less than the first estimate.

Business investment slowed sharply in the third quarter after sharp tax-cut driven gains in the first half of the year but still contributed 0.35 points to the quarter which is up from the first estimate's marginal contribution. Government is the final major component and, at 0.44 points, contributed a little less than the first estimate.

Inflation wasn't a risk in the third quarter with the GDP price index unchanged from the first estimate at a 1.7 percent rate. Year-on-year, this reading has been trending higher but did dip 1 tenth in the quarter to 2.3 percent.

Though consumer spending was strong in the third quarter, it was an outsized build in inventories that proved to be a decisive plus. Whether the inventory build will extend to the fourth quarter is uncertain as is the nation's trade situation. Initial data on October goods trade, also released this morning and which will be an input into fourth-quarter GDP, shows unwanted deepening. In the end, however, consumer spending will be the fourth quarter's most important input and will reflect the success or failure of the holiday shopping season.

Consensus Outlook
The second estimate for third-quarter GDP is expected to come in at a 3.5 percent annualized rate which would be unchanged from the first estimate. Consumer spending is expected rise at a 3.7 percent pace, a bit less robust than the first estimate's very strong 4.0 percent. Inventories were a central positive in the first estimate with trade and residential investment major weaknesses. The GDP price index is seen unchanged at 1.7 percent.

Definition
Gross Domestic Product represents the total value of the country's production during the period and consists of the purchases of domestically-produced goods and services by individuals, businesses, foreigners and government entities. Data are available in nominal and real (inflation-adjusted) dollars, as well as in index form. Economists and market players always monitor the real growth rates generated by the GDP quantity index or the real dollar value. The quantity index measures inflation-adjusted activity, but we are more accustomed to looking at dollar values.

Household purchases are counted in personal consumption expenditures -- durable goods (such as furniture and cars), nondurable goods (such as clothing and food) and services (such as banking, education and transportation). Private housing purchases are classified as residential investment. Businesses invest in nonresidential structures, durable equipment and computer software. Inventories at all stages of production are counted as investment. Only inventory changes, not levels, are added to GDP.

Net exports equal the sum of exports less imports. Exports are the purchases by foreigners of goods and services produced in the United States. Imports represent domestic purchases of foreign-produced goods and services and must be deducted from the calculation of GDP. Government purchases of goods and services are the compensation of government employees and purchases from businesses and abroad. Data show the portion attributed to consumption and investment. Government outlays for transfer payments or interest payments are not included in GDP.

The GDP price index is a comprehensive indicator of inflation. It is typically lower than the consumer price index because investment goods (which are in the GDP price index but not the CPI) tend to have lower rates of inflation than consumer goods and services. Note that contributions of each component, as averaged over the prior year, are tracked in the table below (components do not exactly sum to total due to chain-weighted methodology). Consumption expenditures, otherwise known as consumer spending, has over history been steadily making up an increasing share of GDP.  Why Investors Care
 
[Chart]
Real GDP in the United States is always quoted at a quarterly annualized rate. It is inflation adjusted and measures at what rate the economy has expanded or contracted over a three-month period. Year-on-year rates are also useful and can offer a smoother view of the economy's trend.
Data Source: Haver Analytics
 
[Chart]
It is common to compare quarterly change at annualized rates in the GDP deflator. But these changes can be volatile and mask the trend which, just like the quarterly swings in GDP, is sometimes more visible in year- on-year change.
Data Source: Haver Analytics
 
 

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