Why US GDP Is About to Hit $20 Trillion

If there is one yardstick that measures the state of the global economies, it is gross domestic product (GDP). The U.S. Department of Commerce released a stronger-than-expected GDP report for the first quarter of 2018. That said, the first quarter seems to be plagued by some of the same seasonal weakness that has been seen in recent years. What should stand out here is that the U.S. economy is about to hit $20 trillion in GDP if any of the expected growth comes to pass in 2018.

First-quarter GDP rose by an annual rate of 2.3% in the agency’s advance estimate. Real GDP increased by 2.9% in the fourth quarter of 2017. Bloomberg was projecting that GDP would be up 2.0% in the first quarter, and Dow Jones (Wall Street Journal) called for only a 1.8% gain in the first quarter.

As for how the U.S. is about to hit that $20 trillion GDP mark, current-dollar GDP increased by 4.3% ($211.2 billion) to a record level of $19.97 trillion in the first quarter of 2018.

There is also something seen here for higher wages and for a benefit of lower taxes. The Commerce Department showed that current-dollar personal income rose by $182.1 billion in the first quarter, versus an increase of $186.4 billion in the fourth quarter, but personal current taxes decreased by $40.1 billion in the first quarter compared with an increase of $50.1 billion in the fourth quarter.

Disposable personal income rose by $222.1 billion (6.2%) in the first quarter, compared with a gain of $136.3 billion (3.8%) in the fourth. Real disposable personal income was up 3.4%, versus 1.1% in the prior quarter.

The price index for gross domestic purchases rose by 2.8% in the first quarter, which was even higher than the 2.5% gain seen in the fourth quarter. The personal consumption expenditures (PCE) price index rose by 2.7% in the fourth quarter, matching the same result from the fourth quarter. Excluding the prices for food and energy, the PCE price index rose by 2.5% in the first quarter, versus a gain of just 1.9% in the fourth quarter.

The Commerce Department also signaled that the gains in real GDP reflected positive contributions from nonresidential fixed investment, personal consumption expenditures, exports, private inventory investment and spending at all government levels (federal, state and local). A drag was seen from an increase in imports.

Also noted in the formal report for the first quarter:

The deceleration in real GDP growth in the first quarter reflected decelerations in PCE, residential fixed investment, exports, and state and local government spending.  These movements were partly offset by an upturn in private inventory investment.  Imports, which are a subtraction in the calculation of GDP, decelerated… Current-dollar GDP increased 4.3 percent, or $211.2 billion, in the first quarter to a level of $19.97 trillion. In the fourth quarter, current-dollar GDP increased 5.3 percent, or $253.5 billion.

Personal saving rose to $462.1 billion in the first quarter from $379.8 billion in the fourth quarter. That created a gain in the personal savings rate of 3.1%, up from 2.6%.

The reason that GDP is a stronger measurement of the overall economy is that it captures what is really happening in the broader economic spending picture. It is heavily dominated by consumer spending, but it weighs the economy more broadly than you might see in certain employment reports. Quite simply, GDP is the value of the goods and services produced in a nation’s economy less the value of the goods and services used up in production.