Third Estimate 4Q2017 GDP Increased To 2.9%. Corporate Profits Down

The third estimate of fourth quarter 2017 Real Gross Domestic Product (GDP) was revised upward to 2.9 % from the second estimate’s 2.5%.

Analyst Opinion of GDP

The increase in GDP in this third estimate was primarily due to an increase in consumer services spending and less negative inventory change. The consumer spending improved from the previous quarter. I am not a fan of quarter-over-quarter exaggerated method of measuring GDP – but my year-over-year preferred method showed moderate acceleration from last quarter.

The market expected (from Bloomberg / Econoday):

Seasonally Adjusted Quarter-over-Quarter Change at annual rate Consensus Range Consensus

Advance

Actual

Second

Actual

Third

Actual

Real GDP 2.4 % to 3.0 % 2.7 % +2.6 % +2.5 % +2.9 % GDP price index 1.6 % to 2.3 % 2.3 % +2.4 % +2.3 % +2.3 % Real Consumer Spending – Q/Q change 3.7 % to 4.1 % 3.8 % +3.8 % +3.8 % +4.0 %

Headline GDP is calculated by annualizing one quarter’s data against the previous quarters data. A better method would be to look at growth compared to the same quarter one year ago. For 4Q2017, the year-over-year growth is now 2.6 % – up from 3Q2017’s 2.3 % year-over-year growth. So one might say that the rate of GDP growth improved 0.3 % from the previous quarter.

Real GDP Expressed As Year-over-Year Change

The same report also provides Gross Domestic Income which in theory should equal Gross Domestic Product. Some have argued the discrepancy is due to misclassification of capital gains as ordinary income – but whatever the reason, there are differences.

Real GDP (blue line) Vs. Real GDI (red line) Expressed As Year-over-Year Change