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The Week Ahead – GDP

| 11/26/18 8:11 AM

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

Last week was Thanksgiving, and while it is always good to remember that there is a lot for which to be grateful, it is especially so when sentiment turns from optimism to pessimism. While there has been some nascent sogginess in economic data, overall economic fundamentals remain strong.

This week we get the first revision of third quarter (Q3) Gross Domestic Product (GDP), which measures the total value of goods and services the U.S. economy produces. While Q3 GDP was announced last month, coming in at a very strong 3.5% annualized growth rate, this statistic goes through a series of revisions as the data continue to flow in with increasing precision. The Bureau of Economic Analysis (BEA) releases multiple estimates of each quarter’s GDP, one each month beginning the month after quarter end. The BEA also issues annual revisions each July and benchmark revisions every few years. Those revisions are often substantial. Since 1975 the first revision averages half a percent, while the second revision tends to be much smaller at a quarter of a percentage point. Most astounding is how much the official GDP statistic changes from the third estimate to its historical measure as refined by multiple revisions: nearly 1.5 percentage points.

The modern concept of GDP was first developed during the Great Depression for a congressional report in 1934. Congress needed a way of showing that the economy was growing - some metric to show progress. Interestingly, the economist who developed the GDP metric warned against its use as a measure of welfare. Producing more goods and services doesn’t always mean that society is better off. For example, GDP goes up after natural disasters such as hurricane Florence due the amount of goods and services necessary to rebuild. However, society is certainly no better off after such a tragedy.

In 1944, GDP became the main tool for measuring a country's economy. The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector, by financial industries, and by intangible asset (R&D, social networking, etc.) creation is more complex. Intangible activities are difficult to quantify, and are increasingly important in advanced economies.

Like an unwelcome house guest, market volatility is likely here to stay through the holidays. But, it’s important to recognize that the economy is growing nicely and the fundamentals are still positive:

  • Best labor market since Woodstock (3.7% unemployment rate)
  • Orderly credit markets
  • Global GDP growth (3.7% estimate for 2018)
  • Low inflation (2.0%)

…and that is something for which we should all be grateful.

Data deck for November 26-30:

Date

Indicator

Period

Nov. 26

Chicago Fed national activity index

Oct.

Nov. 27

Case-Shiller house prices

Sept.

Nov. 27

Consumer confidence index

Nov.

Nov. 28

GDP

Q3

Nov. 28

Advance trade in goods

Oct.

Nov. 28

New home sales

Oct.

Nov. 29

Weekly jobless claims

11/24

Nov. 29

Personal income

Oct.

Nov. 29

Consumer spending

Oct.

Nov. 29

Core inflation

Oct.

Nov. 29

Pending home sales

Oct.

Nov. 29

FOMC minutes

 

Nov. 30

Chicago PMI

Oct.

    

IMPORTANT DISCLOSURE INFORMATION    

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by First Foundation Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from First Foundation Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. First Foundation Advisors is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the First Foundation Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request. Please Note: First Foundation Advisors does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to First Foundation Advisors’ web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Brett Dulyea, CFA, CAIA
About the Author
Brett Dulyea, CFA, CAIA
Mr. Dulyea serves as a Portfolio Strategist on the investment team and is responsible for conducting manager research and executing investment strategies for clients. As a member of the investment committee, he provides market commentary and investment insights. Mr. Dulyea’s specializes in advising client portfolios, defining investment plans, and communicating the firm’s investment viewpoints. Prior to joining the firm, Mr. Dulyea was a Director, Portfolio Manager at Deutsche Bank. In addition to working directly with clients, he was a member of the Fixed Income Strategy Group and managed customized portfolios for clients. He previously worked in the Wells Fargo Wealth Management Group as a Vice President, Senior Investment Strategist and at Merrill Lynch as a Vice President, Portfolio Manager. Mr. Dulyea earned his Master’s in Business Administration (MBA) from California Polytechnic University, Pomona and holds the Chartered Financial Analyst® (CFA) designation and the Chartered Alternative Investment Analyst (CAIA) charter. He earned his Bachelor’s degree from the California Polytechnic University, Pomona. He also served as an adjunct Professor of Finance at California Polytechnic University, Pomona for two years. Read more
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