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Is 1Q2017 GDP Growth Of 0.7% That Bad?

Of course, 0.7% growth is not good - but there are seasonal issues with GDP (first quarters are notoriously bad), and quarter-over-quarter analysis of headline GDP magnifies changes in the rate of growth.

And add to this, the inclusion of inventories into GDP calculations removed almost 1 %.

I am not a fan of quarter-over-quarter exaggerated method of measuring GDP - but my year-over-year preferred method showed only moderate deceleration from last quarter. First quarter GDP seems plagued with seasonal adjustment issues - as low numbers occur often since the end of the Great Recession.

Consider:

  • This advance estimate released today is based on source data that are incomplete or subject to further revision. (See caveats below.) Please note that historically advance estimates have turned out to be little more than wild guesses.
  • 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 1Q2017, the year-over-year growth is 1.9 % - down from 4Q2016's 2.0 % year-over-year growth. So one might say that the rate of GDP growth decelerated +0.1 % 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

Real GDP is inflation adjusted and annualized - and Real GDP per capita remains on a general upward trend.

Real GDP per Capita

The table below compares the previous quarter estimate of GDP (Table 1.1.2) with the advance estimate this quarter which shows:

  • consumption for goods and services decelerated..
  • trade balance improved and increased GDP by 0.7% (imports grew and exports declined)
  • inventory change removed 0.9 % to GDP
  • except for inventory growth, fixed investment growth improved
  • there was marginal decline in federal spending

The following is Table 1.1.2 before the annual revision: [click to enlarge]

If you throw out inventories, 1Q2017 was better than 4Q2016. If you ignore the trade balance, 4Q2016 was better. In all events, neither quarter had good enough growth.

Other Economic News this Week:

The Econintersect Economic Index for April 2017 improvement trend continues although the value remains in the territory of weak growth. The index remains below the median levels seen since the end of the Great Recession. Six-month employment growth forecast indicates modest improvement in the rate of growth.

Bankruptcies this Week from bankruptcydata.com: none

Please visit our landing page for a summary of analysis for this past week.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.