Fourth Quarter GDP
I’m going to go out on a limb here (not really) and say that fourth quarter GDP will be negative. Why? Well, if you look at personal consumption expenditures for October and November they are down. Along with Personal Income and Disposable Personal Income (November only).
Personal Consumption Expenditures (PCE) is down 1% and 0.6% for October and November respectively in nominal dollars, although in chained dollars the percentages are -0.5% and 0.6%. However, the increase in November in adjusted dollars is due to a larger decline in PCE implicit deflator and if we exclude food and energy the deflator is essentially unchanged. In other words, the primary reason PCE went up in November is because the price of food and energy have fallen. Now that is a good thing to be sure, but overall I think it is a bad thing for GDP which is often looked at as a quick measure of economic performance for the economy.
The reason why this is bad for GDP is that PCE makes up well over 70% of GDP, so significant drops in PCE for the first two months of the quarter will likely mean a drop in GDP. No perhaps December will see a large increase in PCE, but such an outcome seems unlikely.
In October and November the change in the PCE deflator excluding food and energy was zero.
Using the Oct. and Nov. real PCE as the estimate of the fourth quarter real pce – i,e., that Dec will be at the average of the two — the 4th quarter change in real PCE will be -2.2% (SAAR).
But this is less than assumed in the consensus forecast behind a 4% drop in 4th Q real GDP.