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Lee Adler

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Consumer Metrics Institute BEA Leaves 2nd Quarter 2018 GDP Growth Essentially Unchanged...

27 September 2018 - 12:00 AM

(If the tables or charts in this report do not seem to be presented correctly, please click here or navagate to http://www.consumeri...commentary.html to see this commentary as a Web Page.)

In their third (and final) estimate of the US GDP for the second quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +4.16% annual rate, down an inconsequential -0.07% from their previous estimate and but still up +1.94% from the prior quarter.

None of the reported revisions were material. The growth rate for consumer spending for goods was revised upward by +0.04%, and there was a -0.01% decline in the growth rate of consumer spending on services. The contraction rate for inventories worsened (-0.20%) to -1.17%, while the growth rate in commercial fixed investment rose by +0.03% to +1.10%. The growth rate for imports improved to +0.10%.

Household disposable income was revised downward by $1 per annum, and the household savings rate was unchanged from the previous report at 6.8%.

For this revision the BEA assumed an effective annualized deflator of 3.31%. During the same quarter (April 2018 through June 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was significantly lower at 2.26%. Over estimating inflation results in pessimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been much higher at a +5.36% annualized growth rate.

Among the notable items in the report :

-- The headline contribution from consumer expenditures for goods was revised upward +0.04% to +1.16% (up +1.29% from the prior quarter).

-- The contribution to the headline from consumer spending on services dropped -0.01% to +1.42%. The combined consumer contribution to the headline number was +2.58%, up over 2% (+2.22%) from 1Q-2018.

-- The headline contribution from commercial private fixed investments was +1.10%, down -0.24% from the prior quarter.

-- Inventories subtracted -1.17% from the headline number. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The growth in governmental spending was up slightly, adding +0.43% to the headline number (and up +0.16% from the prior quarter).

-- Exports contributed +1.12% to the headline number, up +0.69% from the prior quarter.

-- In a continuation of inverted form, imports added +0.10% to the headline number, up +0.55% from the prior quarter. In aggregate, foreign trade boosted the headline number by +1.22%.

-- The "real final sales of domestic product" growth was revised upward to +5.33%, up a dramatic +3.38% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was down $1 per year from the previous report. The household savings rate was reported to be unchanged at 6.8%.



The Numbers, as Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $20.4 = $13.9 + $3.6 + $3.5 + $-0.5 % of GDP 100.00% = 67.98% + 17.54% + 17.18% + -2.69% Contribution to GDP Growth % 4.16% = 2.58% + -0.07% + 0.43% + 1.22%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 2Q-2018 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 Total GDP Growth 4.16% 2.22% 2.29% 2.82% 3.00% 1.79% 1.77% 1.92% 2.28% 1.54% 0.41% 0.97% 3.35% 3.32% Consumer Goods 1.16% -0.13% 1.42% 0.86% 1.17% 0.40% 0.58% 0.70% 1.01% 0.72% 0.51% 0.91% 1.02% 0.94% Consumer Services 1.42% 0.49% 1.22% 0.65% 0.79% 0.82% 1.17% 1.09% 1.29% 0.90% 1.02% 1.00% 1.29% 1.41% Fixed Investment 1.10% 1.34% 1.04% 0.44% 0.72% 1.60% 0.28% 0.52% 0.46% 0.31% -0.33% 0.51% 0.63% -0.01% Inventories -1.17% 0.27% -0.91% 1.04% 0.23% -0.80% 1.03% -0.59% -0.62% -0.62% -0.70% -0.73% -0.25% 2.16% Government 0.43% 0.27% 0.41% -0.18% 0.01% -0.13% 0.03% 0.17% -0.15% 0.60% 0.12% 0.33% 0.70% 0.40% Exports 1.12% 0.43% 0.79% 0.42% 0.44% 0.59% -0.44% 0.71% 0.39% -0.31% -0.28% -0.44% 0.48% -0.56% Imports 0.10% -0.45% -1.68% -0.41% -0.36% -0.69% -0.88% -0.68% -0.10% -0.06% 0.07% -0.61% -0.49% -1.02% Real Final Sales 5.33% 1.95% 3.20% 1.78% 2.77% 2.59 0.74% 2.51% 2.90% 2.16% 1.11% 1.70% 3.60% 1.16%



Summary and Commentary

All of the revisions in this report can be characterized as statistical noise. Nonetheless, a headline number with +4.16% growth is very good, confirming that the stimulus expected from the "Tax Cuts and Jobs Act of 2017" has materialized. And the BEA's own "bottom line" Real Final Sales growth was reported to be +5.33%.

As we have mentioned before, this kind of growth signals that the Fed's accommodations over the past decade are certainly no longer needed. And if the growth persists in this range for another quarter or two, significant tightening might be warranted to prevent the economy (and wage-price inflation) from overheating.
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Consumer Metrics Institute BEA Revises 2nd Quarter 2018 GDP Growth Upward to 4.23%

29 August 2018 - 12:00 AM

(If the tables or charts in this report do not seem to be presented correctly, please click here or navagate to http://www.consumeri...commentary.html to see this commentary as a Web Page.)

In their second estimate of the US GDP for the second quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +4.23% annual rate, up +0.16% from their previous estimate and up +2.01% from the prior quarter.

None of the reported revisions were material. The growth rate for consumer spending for services was revised lower by -0.12%, and there was a -0.03% decline in the growth rate of consumer spending on goods. The contraction rate for inventories moderated slightly (+0.03%) to -0.97%, while the growth rate in commercial fixed investment rose by +0.13% to +1.07%. The growth rate for imports improved +0.13%.

Household disposable income was revised lower by $9 per annum, and the household savings rate was unchanged from the previous report at 6.8% (although that previous report contained extensive and significant upward revisions to historic savings rates).

For this revision the BEA assumed an effective annualized deflator of 3.24%. During the same quarter (April 2018 through June 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was significantly lower at 2.26%. Over estimating inflation results in pessimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been much higher at a +5.36% annualized growth rate.

Among the notable items in the report :

-- The headline contribution from consumer expenditures for goods was revised downward -0.12% to +1.12% (but still up +1.25% from the prior quarter).

-- The contribution to the headline from consumer spending on services dropped -0.03% to +1.43%. The combined consumer contribution to the headline number was +2.55%, up over 2% (+2.19%) from 1Q-2018.

-- The headline contribution from commercial private fixed investments was +1.07%, down -0.27% from the prior quarter.

-- Inventories subtracted -0.97% from the headline number. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The growth in governmental spending was up slightly, adding +0.41% to the headline number (and up +0.14% from the prior quarter).

-- Exports contributed +1.10% to the headline number, up +0.67% from the prior quarter.

-- Contrary to normal form, imports added +0.07% to the headline number, up +0.52% from the prior quarter. In aggregate, foreign trade boosted the headline number by +1.17%.

-- The "real final sales of domestic product" growth was revised upward to +5.20%, up a dramatic +3.25% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was down $9 per year from the previous report. The household savings rate was reported to be unchanged at 6.8%.



The Numbers, as Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $20.4 = $13.9 + $3.6 + $3.5 + $-0.6 % of GDP 100.00% = 67.96% + 17.57% + 17.17% + -2.70% Contribution to GDP Growth % 4.23% = 2.55% + 0.10% + 0.41% + 1.17%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 2Q-2018 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 Total GDP Growth 4.23% 2.22% 2.29% 2.82% 3.00% 1.79% 1.77% 1.92% 2.28% 1.54% 0.41% 0.97% 3.35% 3.32% Consumer Goods 1.12% -0.13% 1.42% 0.86% 1.17% 0.40% 0.58% 0.70% 1.01% 0.72% 0.51% 0.91% 1.02% 0.94% Consumer Services 1.43% 0.49% 1.22% 0.65% 0.79% 0.82% 1.17% 1.09% 1.29% 0.90% 1.02% 1.00% 1.29% 1.41% Fixed Investment 1.07% 1.34% 1.04% 0.44% 0.72% 1.60% 0.28% 0.52% 0.46% 0.31% -0.33% 0.51% 0.63% -0.01% Inventories -0.97% 0.27% -0.91% 1.04% 0.23% -0.80% 1.03% -0.59% -0.62% -0.62% -0.70% -0.73% -0.25% 2.16% Government 0.41% 0.27% 0.41% -0.18% 0.01% -0.13% 0.03% 0.17% -0.15% 0.60% 0.12% 0.33% 0.70% 0.40% Exports 1.10% 0.43% 0.79% 0.42% 0.44% 0.59% -0.44% 0.71% 0.39% -0.31% -0.28% -0.44% 0.48% -0.56% Imports 0.07% -0.45% -1.68% -0.41% -0.36% -0.69% -0.88% -0.68% -0.10% -0.06% 0.07% -0.61% -0.49% -1.02% Real Final Sales 5.20% 1.95% 3.20% 1.78% 2.77% 2.59 0.74% 2.51% 2.90% 2.16% 1.11% 1.70% 3.60% 1.16%



Summary and Commentary

Although the revisions in this report can be characterized as statistical noise, a headline number with +4.23% growth is outstanding under any circumstance. The stimulus expected from the "Tax Cuts and Jobs Act of 2017" seems to be materializing. And the BEA's own "bottom line" Real Final Sales growth was reported to be +5.20% -- a number that some might consider to be unsustainably high or an early indication of an overheating economy.

As we have mentioned before, this kind of growth signals that the Fed's accommodations over the past decade are certainly no longer needed. And if the growth persists in this range for another quarter or two, significant tightening might be in order.
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Consumer Metrics Institute BEA Estimates 2nd Quarter 2018 GDP Growth at 4.07%

27 July 2018 - 12:00 AM

(If the tables or charts in this report do not seem to be presented correctly, please click here or navagate to http://www.consumeri...commentary.html to see this commentary as a Web Page.)

In their first ("Advance") estimate of the US GDP for the second quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +4.07% annual rate, up a significant +1.85% from a revised prior quarter.

In this report the BEA also performed their annual revisions to previous quarters, this time dating back to 1929. The average quarterly revision to the headline number for the past four quarters was downward and material at -0.19%, while the average quarterly revision for the headline over the period dating back to the beginning of 2008 was much smaller at -0.03%.

That small average revision masks the nature and volatility of the revisions. The standard deviation of the headline number's revisions dating back to 2008 was 0.46%, indicating that although over the long term the growth measurements were generally accurate, significant portions of that growth were initially misallocated at a quarterly level. The bulk of the revisions consisted of moving material amounts of the growth from one quarter to another.

During the second quarter of 2018 the growth rate for total consumer spending was reported to be +2.70%, up +2.34% from the revised prior quarter. Inventories contracted by -1.00%, while the growth rate in commercial fixed investment rose by a nearly offsetting +0.94%. Exports strengthened by +1.12% while imports weakened -- subtracting only -0.06% from the headline number.

Previously reported household income data was also extensively revised. Real annualized household disposable income increased by $205 per annum (in 2012 dollars), and the household savings rate was revised sharply upward to 6.8%.

For this revision the BEA assumed an effective annualized deflator of 3.21%. During the same quarter (April 2018 through June 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was significantly lower at 2.26%. Over estimating inflation results in pessimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been much higher at a +5.16% annualized growth rate.

Among the notable items in the report :

-- Consumer expenditures for goods grew at a +1.24% annualized rate (up +1.37% from a revised prior quarter).

-- The contribution to the headline from consumer spending on services increased +0.97% to +1.46%. The combined consumer contribution to the headline number was +2.70%, up +2.34% from a revised 1Q-2018.

-- The headline contribution from commercial private fixed investments was +0.94%, down -0.40% from the prior quarter.

-- Inventories subtracted -1.00% from the headline number. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The growth in governmental spending added +0.37% to the headline number, up +0.10% from a revised prior quarter.

-- Exports contributed +1.12% to the headline number, up +0.69% from the prior quarter.

-- Imports subtracted only -0.06% from the headline number, up +0.39% from the prior quarter. In aggregate, foreign trade added +1.06% to the headline number.

-- The "real final sales of domestic product" growth was a very healthy +5.07%, up a substantial +3.12% from a revised prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was reported to have grown $205 quarter-to-quarter in this report. The household savings rate was reported to be 6.8%. Nearly all of the personal income numbers were revised (including the quarter-by-quarter household savings rates, which were nearly doubled in revision over the past two years), and the reporting was shifted from chained 2009 dollars to 2012 dollars.



The Numbers, Nearly All Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $20.4 = $13.9 + $3.6 + $3.5 + $-0.6 % of GDP 100.00% = 68.02% + 17.53% + 17.16% + -2.71% Contribution to GDP Growth % 4.07% = 2.70% + -0.06% + 0.37% + 1.06%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 2Q-2018 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 Total GDP Growth 4.07% 2.22% 2.29% 2.82% 3.00% 1.79% 1.77% 1.92% 2.28% 1.54% 0.41% 0.97% 3.35% 3.32% Consumer Goods 1.24% -0.13% 1.42% 0.86% 1.17% 0.40% 0.58% 0.70% 1.01% 0.72% 0.51% 0.91% 1.02% 0.94% Consumer Services 1.46% 0.49% 1.22% 0.65% 0.79% 0.82% 1.17% 1.09% 1.29% 0.90% 1.02% 1.00% 1.29% 1.41% Fixed Investment 0.94% 1.34% 1.04% 0.44% 0.72% 1.60% 0.28% 0.52% 0.46% 0.31% -0.33% 0.51% 0.63% -0.01% Inventories -1.00% 0.27% -0.91% 1.04% 0.23% -0.80% 1.03% -0.59% -0.62% -0.62% -0.70% -0.73% -0.25% 2.16% Government 0.37% 0.27% 0.41% -0.18% 0.01% -0.13% 0.03% 0.17% -0.15% 0.60% 0.12% 0.33% 0.70% 0.40% Exports 1.12% 0.43% 0.79% 0.42% 0.44% 0.59% -0.44% 0.71% 0.39% -0.31% -0.28% -0.44% 0.48% -0.56% Imports -0.06% -0.45% -1.68% -0.41% -0.36% -0.69% -0.88% -0.68% -0.10% -0.06% 0.07% -0.61% -0.49% -1.02% Real Final Sales 5.07% 1.95% 3.20% 1.78% 2.77% 2.59 0.74% 2.51% 2.90% 2.16% 1.11% 1.70% 3.60% 1.16%



Summary and Commentary

A headline number showing +4.07% growth makes us want to break into a boisterous refrain of "Happy Days are Here Again." Some will undoubtedly claim that the "Tax Cuts and Jobs Act of 2017" is making America great again. And the BEA's own "bottom line" Real Final Sales growth was reported to be +5.07% -- a number that some might consider to be unsustainably high or an early indication of an overheating economy. At minimum it signals that the Fed's accommodations over the past decade are no longer needed.

One cautionary point should be made for the data geeks: in a number of cases (particularly household savings rates) the revisions were substantial enough that they materially changed our understanding of how the historical economy was behaving. As a glaring example, the household savings rates since 2012 were substantially increased -- including an essential doubling of the savings rates for the prior four quarters. These kind of revisions suggest major methodology changes that can make historical comparisons problematic.

While we are pleased to find the economy growing far faster than we had previously expected, the historical revisions leave us with a sense of unease.
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Consumer Metrics Institute BEA Revises 1st Quarter 2018 GDP Growth Downward to 2.00%

28 June 2018 - 12:00 AM

(If the tables or charts in this report do not seem to be presented correctly, please click here or navagate to http://www.consumeri...commentary.html to see this commentary as a Web Page.)

In their third (and final) estimate of the US GDP for the first quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.00% annual rate, down -0.17% from their previous estimate and down -0.88% from the prior quarter.

The growth rate for consumer spending for services was revised downward again by -0.15%, and there was a minor upward revision (+0.04%) to consumer spending on goods -- although that spending was still net contracting (-0.09%). Similarly, the growth in inventories declined by -0.14% while the growth in commercial fixed investment rose by a counterbalancing +0.18%. The growth rates for both exports and imports weakened by an aggregate -0.12%.

Real annualized household disposable income increased by $29 per annum, and the household savings rate was revised upward +0.2% to 3.3%. While the savings rate remained below recent norms, it was +0.6% better than the prior quarter -- which was the lowest level seen since the third quarter of 2007.

For this revision the BEA assumed an effective annualized deflator of 2.19%. During the same quarter (January 2018 through March 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 2.53%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been lower at a +1.71% annualized growth rate.

Among the notable items in the report :

-- Consumer expenditures for goods contracted at a -0.09% annualized rate (down -1.76% from the prior quarter).

-- The contribution to the headline from consumer spending on services dropped -0.15% to +0.69%. The combined consumer contribution to the headline number was +0.60%, down over 2% (-2.15%) from 4Q-2017.

-- The headline contribution from commercial private fixed investments was +1.23%, up +0.18% from the previous report but down slightly (-0.08%) from the prior quarter.

-- Inventories subtracted -0.01% from the headline number. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The growth in governmental spending was revised upward slightly (+0.02%), adding +0.22% to the headline number (although that growth rate is down -0.29% from the prior quarter).

-- Exports contributed +0.44% to the headline number, down -0.39% from the prior quarter.

-- Imports subtracted -0.48% from the headline number, up +1.51% from the prior quarter. In aggregate, foreign trade subtracted -0.04% from the headline number.

-- The "real final sales of domestic product" growth was revised downward to +2.01%, down a substantial -1.40% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was revised upward $29 in this report. The household savings rate was reported to be 3.3% (up +0.6% from the prior quarter). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.76% in aggregate since the second quarter of 2008 -- a meager annualized +0.77% growth rate over the past 39 quarters.



The Numbers, As Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $20.0 = $13.8 + $3.4 + $3.4 + $-0.6 % of GDP 100.00% = 68.98% + 16.93% + 17.27% + -3.18% Contribution to GDP Growth % 2.00% = 0.60% + 1.22% + 0.22% + -0.04%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 Total GDP Growth 2.00% 2.88% 3.16% 3.06% 1.24% 1.76% 2.79% 2.25% 0.57% 0.48% 1.63% 2.74% 3.24% Consumer Goods -0.09% 1.67% 0.97% 1.16% 0.15% 1.03% 0.69% 1.30% 0.46% 0.63% 0.95% 0.99% 0.93% Consumer Services 0.69% 1.08% 0.52% 1.08% 1.17% 0.97% 1.23% 1.28% 0.77% 1.17% 0.90% 1.04% 1.56% Fixed Investment 1.23% 1.31% 0.40% 0.53% 1.27% 0.28% 0.25% 0.22% -0.05% -0.41% 0.55% 0.77% 0.67% Inventories -0.01% -0.53% 0.79% 0.12% -1.46% 1.06% 0.16% -0.67% -0.64% -0.68% -0.22% -0.63% 1.45% Government 0.22% 0.51% 0.12% -0.03% -0.11% 0.03% 0.09% -0.16% 0.32% 0.05% 0.21% 0.60% 0.27% Exports 0.44% 0.83% 0.25% 0.42% 0.85% -0.47% 0.74% 0.32% -0.33% -0.29% -0.51% 0.47% -0.59% Imports -0.48% -1.99% 0.11% -0.22% -0.63% -1.14% -0.37% -0.04% 0.04% 0.01% -0.25% -0.50% -1.05% Real Final Sales 2.01% 3.41% 2.37% 3.94% 2.70% 0.70% 2.63% 2.92% 1.21% 1.16% 1.85% 3.37% 1.79%



Summary and Commentary

The changes reflected in this report are arguably all just statistical noise. The major takeaways from this report were :

-- Consumer spending for goods was still reported to be contracting during the quarter, and the reported growth in services spending weakened materially.

-- The overall annualized growth rate for consumer spending dropped -2.15% on a quarter-to-quarter basis.

-- Although household disposable income improved quarter-to-quarter (most likely due to the reduced withholding rates in the "Tax Cuts and Jobs Act of 2017"), most of that improvement went into increased savings.

-- The BEA's deflators were once again boosting the headline number, in this case by +0.29%.

The headline from the report should have read: "Consumer spending on goods continued to contract, while consumer spending on services was revised downward yet again." If consumers are the driving force for the US economy, a report like this should be raising major caution flags.
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Consumer Metrics Institute BEA Revised 1st Quarter 2018 GDP Growth Downward to 2.17%

30 May 2018 - 12:00 AM

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In their second estimate of the US GDP for the first quarter of 2018, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.17% annual rate, down -0.15% from their previous estimate and down -0.71% from the prior quarter.

The growth rate for consumer spending for services was revised lower by -0.13%, which was accompanied by a nearly offsetting +0.11% improvement in consumer spending on goods. Similarly, the growth in inventories declined by -0.30% while the growth in commercial fixed investment rose by a counterbalancing +0.29%. The growth rates for both exports and imports weakened by an aggregate -0.12%.

Both real annualized household disposable income and the household savings rate were unchanged from the previous report. While the savings rate remained below recent norms, it was +0.5% better than the prior quarter -- which was the lowest level seen since the third quarter of 2007.

For this revision the BEA assumed an effective annualized deflator of 1.96%. During the same quarter (January 2018 through March 2018) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was materially higher at 2.53%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been significantly lower at a +1.64% annualized growth rate.

Among the notable items in the report :

-- Consumer expenditures for goods contracted at a -0.13% annualized rate (down -1.80% from the prior quarter).

-- The contribution to the headline from consumer spending on services dropped -0.13% to +0.84%. The combined consumer contribution to the headline number was +0.71%, down over 2% (-2.04%) from 4Q-2017.

-- The headline contribution from commercial private fixed investments was +1.05%, down -0.26% from the prior quarter.

-- Inventories added +0.13% to the headline number. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The growth in governmental spending was unchanged, adding +0.20% to the headline number (although that growth rate is down -0.31% from the prior quarter).

-- Exports contributed +0.51% to the headline number, down -0.32% from the prior quarter.

-- Imports subtracted -0.43% from the headline number, up +1.56% from the prior quarter. In aggregate, foreign trade boosted the headline number by +0.08%.

-- The "real final sales of domestic product" growth was revised upward to +2.04%, although that growth was down a substantial -1.37% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the inventory data.

-- As mentioned above, real per-capita annual disposable was unchanged in this report -- up $255 from a revised prior quarter. The household savings rate was reported to be 3.1% (up +0.5% from the prior quarter, but only half of the rate recorded for second quarter of 2015). As always, it is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.68% in aggregate since the second quarter of 2008 -- a meager annualized +0.76% growth rate over the past 39 quarters.



The Numbers, As Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)

or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table Total GDP = C + I + G + (X-M) Annual $ (trillions) $20.0 = $13.8 + $3.4 + $3.4 + $-0.6 % of GDP 100.00% = 69.03% + 16.93% + 17.25% + -3.21% Contribution to GDP Growth % 2.17% = 0.71% + 1.18% + 0.20% + 0.08%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016 4Q-2015 3Q-2015 2Q-2015 1Q-2015 Total GDP Growth 2.17% 2.88% 3.16% 3.06% 1.24% 1.76% 2.79% 2.25% 0.57% 0.48% 1.63% 2.74% 3.24% Consumer Goods -0.13% 1.67% 0.97% 1.16% 0.15% 1.03% 0.69% 1.30% 0.46% 0.63% 0.95% 0.99% 0.93% Consumer Services 0.84% 1.08% 0.52% 1.08% 1.17% 0.97% 1.23% 1.28% 0.77% 1.17% 0.90% 1.04% 1.56% Fixed Investment 1.05% 1.31% 0.40% 0.53% 1.27% 0.28% 0.25% 0.22% -0.05% -0.41% 0.55% 0.77% 0.67% Inventories 0.13% -0.53% 0.79% 0.12% -1.46% 1.06% 0.16% -0.67% -0.64% -0.68% -0.22% -0.63% 1.45% Government 0.20% 0.51% 0.12% -0.03% -0.11% 0.03% 0.09% -0.16% 0.32% 0.05% 0.21% 0.60% 0.27% Exports 0.51% 0.83% 0.25% 0.42% 0.85% -0.47% 0.74% 0.32% -0.33% -0.29% -0.51% 0.47% -0.59% Imports -0.43% -1.99% 0.11% -0.22% -0.63% -1.14% -0.37% -0.04% 0.04% 0.01% -0.25% -0.50% -1.05% Real Final Sales 2.04% 3.41% 2.37% 3.94% 2.70% 0.70% 2.63% 2.92% 1.21% 1.16% 1.85% 3.37% 1.79%



Summary and Commentary

As mentioned last month, we need to be cautious about taking this set of downward revised numbers for the actual growth rate of the US economy. All of the BEA's especially noisy components are contributing to the headline number: inventories, imports and deflators. At key economic inflection points those three components can become closely coupled, with lagging price discovery compounding reported inventory and import swings.

The major takeaways from this report were :

-- Consumer spending for goods was still reported to be contracting during the quarter, and the reported growth in services spending weakened materially.

-- The overall annualized growth rate for consumer spending dropped over -2% on a quarter-to-quarter basis.

-- Although household disposable income improved quarter-to-quarter (most likely due to the reduced withholding rates in the "Tax Cuts and Jobs Act of 2017"), most of that improvement went into increased savings.

-- The BEA's deflators were once again boosting the headline number, in this case by +0.53%.

The US economy was probably somewhat cooler than the BEA's already tepid headline number might suggest. Downward trending headline growth rates slightly above 2% is not the stuff that economic dreams are made on.
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