Today’s US GDP report is dodgy in almost every respect. It’s not surprising that bond yields fell on the news.
The biggest disappointment relative to the consensus forecast was personal consumption, at 1.47%, the lowest vs. 2.6%. Even more disappointing is the composition of personal consumption. Services consumption contributed 1% of the overall 2.9% growth. Most of this was health care (hardly a contributor to long-term growth) and housing services (more rentals from homeowners who cannot afford to buy). Neither of these reflect economic strength.
Personal consumption of goods, meanwhile, contributed less than half a percent to the overall 2.9% growth rate, the weakest number in three years.
Gross private fixed investment was positive for the first time since the first quarter of 2015, but it is hard to work out from the published reports where it came from. Most of it seems to be purchases of computers and “intellectual property products,” according to the Commerce Department release.
Inventories made an outsized contribution to growth as well, accounting for 0.61% of the reported 2.9% growth. And net exports contributed 0.83% of the 2.9% growth, the biggest contribution since the 4th quarter of 2013. The published data for US trade in goods and services indicated no such surge in net exports and it is unclear how the Bureau of Economic Affairs came up with the number.
A better indication of the state of the US economy is final sales to domestic purchasers. That strips out the inventory, foreign trade and other noise. A clear downtrend is visible in domestic final sales and related measures.