US BEA: 2016 GDP Revised Down To +1.5%; Core PCE Prices +1.8%

--GDP Growth Revised Up To +2.9% In 2015; Revised Up To +2.6% In 2014

--4Q16 GDP Revised Down To +1.8% From Previous +2.1%; 3Q Now +2.8%

--2016 Core PCE Price Index Revised Up To +1.8% From +1.7%; +1.9% 4Q/4Q Vs +1.7%

By Kevin Kastner

     WASHINGTON (MNI) - Armed with updated source data and changes to

methodology, the U.S. Bureau of Economic Analysis on Friday released revised

estimates for economic growth that show that GDP growth in 2016 was modestly

lower than previously estimated. 

     GDP grew at 1.5% last year, compared with the previously reported 1.6%

gain, with downward revisions to three of the quarters offsetting a large upward

revision to growth in the second quarter.

     However, the core PCE price index, the Federal Reserve's preferred gauge of

inflationary pressure, was revised up to a 1.8% pace for 2016 from the

previously reported 1.7% gain. 

     Core PCE prices are now up 1.9% in the fourth quarter compared with the

same quarter a year earlier, an upward adjustment from the previously reported

1.7% gain that brought that measure closer to the Fed's 2% target. Upward

revisions to the second and third quarter were the key factors.

     The annual revisions are being released to coincide with the announcement

of the revised first-quarter and advance second-quarter GDP data for 2017. 

     For the full-year periods covered by the annual revision, 2014 to 2016, GDP

growth now averages a 2.3% annual rate, a very small upward adjustment from a

2.2% rate based on previous data and confirming that the revisions did not alter

growth picture in recent years significantly. Gross Domestic Income was

unrevised during that period at a 2.3% average annual rate. As a result, the

average of GDP and GDI remained at 2.3%.

     The BEA said that it is still on schedule to release unadjusted GDP data

for the first time, alongside its comprehensive revision, in July 2018, in an

effort to address the issue of residual seasonality. The data will be presented

in both nominal and real terms. This would allow comparison of adjusted and

unadjusted data, which some market analysts have called for in recent years.

     In 2016, there were downward revisions to growth in the first quarter,

which is now up 0.6% compared with 0.8% previously, the third quarter, which now

stands at 2.8% versus the previous 3.5% gain, and the fourth quarter, which was

revised down to a 1.8% pace from the 2.1% rate previously reported.

     Offsetting those downward adjustments was an upward revision to the second

quarter, which is now up 2.2% compared with the 1.4% gain previously reported

for the quarter.

     On a Q4/Q4 basis, GDP is now reported up 1.8% in 2016, a downward

adjustment from the originally published 2.0% gain.

     The driving factor in the downward revision to 2016 GDP growth was a

decline in exports of travel service and foods such as soybeans. PCE growth and

government spending were unrevised in 2016, while nonresidential fixed

investment and government spending were revised modestly lower. Imports were

revised higher when exports were revised down, so the net export gap was wider

in 2016 than previously reported. Residential fixed investment and inventories

growth in 2016 were both stronger than previously reported.

     For 2015, GDP growth was revised up to a 2.9% rate from the previously

reported 2.6% gain. There was a large upward revision to growth in the first

quarter of 2015 to 3.2% from the previously reported 2.0% pace, notable given

the BEA's efforts to look at residual seasonality that disproportionally impacts

the first quarter of a given year. There was also a small upward adjustment to

growth in the second quarter of 2015, offset by downward revisions in the second

and third quarters. 

     The key drivers of the upward revision in 2015 were stronger PCE,

nonresidential fixed investment and inventory growth, which offset a wider net

export gap and slower residential investment and government spending growth than

previously reported. 

     Growth in 2014 was revised up slightly to a 2.6% annual rate from the

previously reported 2.4% rise, with upward revisions to the first three quarters

of the year, offset by a downward revision to the fourth quarter. Even with the

upward revision, the first quarter of 2014 still posted a decline, falling by

0.9% to remain the most recent negative quarter.

     The key drivers of the upward revision in 2014 were stronger nonresidential

fixed investment and inventory growth and a smaller decline in government

spending, which offset a slightly wider net export gap and slower residential

investment growth than previously reported. Growth in PCE and residential fixed

investment were not altered from their previously reported growth rates. 

     Current dollar GDP was revised up in 2014 and 2015 and revised down in

2016, while the chain price index rate of growth was unrevised in all three

years, so the revision pattern to real GDP was the same as for current-dollar

GDP. 

     The closely watched core PCE price index was revised up to 1.8% in 2016,

but was revised down to 1.3% in 2015 and was left at 1.6% in 2014.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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