The First Estimate of 2019
Should We Expect a Repeat in Q2?
The first estimate of 2019:1 GDP was released last Friday at 3.2% annualized growth. This number was higher than most estimates, but the details suggest that this strong showing is not likely to be repeated next quarter. One can see this message in the breakdown of that growth by economic sector also released. The table is called “Contributions to GDP Growth”. If you take the time to study such releases, looking at that table is very helpful. I do it with each release.
Here’s why the numbers are less than encouraging. The three best sustainable indicators—goods, services and investment—contributed 1.09 percentage points to the 3.2, down from 2.20 last month. Those are the indicators that measure what businesses and consumers spend their money on.
Government spending accounted for .41 percentage points, up from -.07 last quarter. The increase was mainly on the state and local side. That leaves 1.7 percentage points remaining, split between inventories at .65 and foreign trade at 1.08 percentage points. Those two totaled .5 last quarter.
Here’s the point: those two indicators jump around quarter to quarter, but average out to about zero across a whole recovery. We shouldn’t expect a repeat of that performance next quarter. With that typical average performance, this quarter would have come in at 1.5% growth, a number that tells a very different story. Of course, we can hope for a bounce back on the business indicators that slipped as they did this quarter, but that would just get us to 2.6% growth: more of the same slow growth from this recovery.
So. Let the President declare victory on the economy if he likes. Keep your outlook a bit more realistic, penciled in at, say, 2.5% growth with slowing freight growth, or maybe something a bit less. While there is still room left in this recovery for a modest upside surprise, the bulk of the exposures are downward. In that regard, the same report also revised the fourth quarter of 2018 GDP numbers to 2.2%, below the trend for this recovery.