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 June 26, 2013 - BEA Revises 1st Quarter 2013 GDP Growth Downward To 1.78% Annual Rate:

In their third estimate of the US GDP for the first quarter of 2013, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 1.78% annualized rate, a full 0.6% lower than the 2.38% growth rate previously published.

A significant revision to consumer spending on services was large enough to account for the entire downward adjustment in the headline number. That was accompanied by materially weaker exports and fixed investments. All of those revisions were enough to lower the BEA's bottom line "real final sales of domestic product" by over a half percent.

For this set of revisions the BEA assumed annualized net aggregate inflation of 1.26%. In contrast, during the first quarter (i.e., from December to March) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) rose by 2.10% (annualized), and the price index published by the Billion Prices Project (BPP) rose at an annualized rate of 5.35%. As a reminder: an understatement of assumed inflation increases the reported headline number -- and in this case the BEA's relatively low "deflater" boosted the published headline rate. If the CPI-U had been used to convert the "nominal" GDP numbers into "real" numbers, the reported headline growth rate would have been a much more modest 0.96%. And if the BPP index (which arguably best reflects the experiences of the American consumer) had be used as the "deflater," the economy would have been reported to have been contracting at a -2.30% annualized rate.

Finally, real per capita disposable income was revised lower once more. In this report real per capita disposable income contracted during the quarter at an astonishing -9.21% annualized rate.

Among the notable items in the report:

-- The contribution of consumer expenditures for goods to the headline number improved slightly to 1.04% (up 0.06% from the prior estimate).

-- The contribution made by consumer services dropped substantially to 0.80% (from 1.42% in the earlier report).

-- The growth rate contribution from private fixed investments was lowered to 0.39% (down well over a percent from the 1.69% growth rate in the previous quarter).

-- Inventories were still shown as growing, contributing 0.57% to the headline growth rate (although that number is down -0.06% from the prior report).

-- The previously reported contraction in government was largely unchanged, and it continues to remove nearly a full percent (-0.93%) from the headline number (although this is an improvement from the -1.41% drag reported for the prior quarter -- and almost all of that "improvement" came from Federal defense spending).

-- Exports weakened substantially relative to the earlier estimate, and they are now subtracting -0.15% from the headline number.

-- But once again that bad news was more than completely offset by an even larger drop in imports -- which now added +0.06% to the headline number after removing -0.32% in the prior report. Since this mathematical "addition" to the headline number can be the consequence of decreasing domestic demand for foreign goods, it is arguably a sign of a weakening economy. It may also be merely a sign of softening commodity prices.

-- The annualized growth rate of "real final sales of domestic product" dropped to 1.21% (from 1.75% in the prior report). This is the BEA's "bottom line" measurement of the economy -- and it remains weaker than the headline number because of the ongoing buildup of inventories.

-- And as mentioned above, real per-capita disposable income took another hit: it is now reported to have dropped by an annualized $796 from quarter to quarter. Real per-capita disposable income is now down $209 annually from 1Q-2011 -- a full two years ago.



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)$16.0=$11.4+$2.1+$3.0+$-0.5
% of GDP100.0%=71.0%+13.4%+18.9%+-3.4%
Contribution to GDP Growth %1.78%=1.84%+0.96%+-0.93%+-0.09%


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 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 Finals Sales of Domestic Product" and listed the quarters in columns with the most current to the left:

Quarterly Changes in % Contributions to GDP

1Q-20134Q-20123Q-20122Q-20121Q-20124Q-20113Q-20112Q-20111Q-20114Q-20103Q-20102Q-20101Q-2010
Total GDP Growth1.78%0.38%3.09%1.26%1.97%4.10%1.28%2.48%0.08%2.39%2.60%2.24%2.33%
Consumer Goods1.04%1.02%0.85%0.08%1.11%1.29%0.33%-0.22%1.27%1.78%0.86%0.76%1.18%
Consumer Services0.80%0.27%0.26%0.99%0.61%0.16%0.85%0.92%0.95%1.06%0.88%1.05%0.54%
Fixed Investment0.39%1.69%0.12%0.56%1.18%1.19%1.75%1.39%-0.14%0.87%-0.10%1.58%-0.10%
Inventories0.57%-1.52%0.73%-0.46%-0.39%2.53%-1.07%0.01%-0.54%-1.61%1.97%0.07%2.23%
Government-0.93%-1.41%0.75%-0.14%-0.60%-0.43%-0.60%-0.16%-1.49%-0.94%-0.06%0.59%-0.69%
Exports-0.15%-0.40%0.27%0.72%0.60%0.21%0.83%0.56%0.75%1.24%1.18%1.14%0.70%
Imports0.06%0.73%0.11%-0.49%-0.54%-0.85%-0.81%-0.02%-0.72%-0.01%-2.13%-2.95%-1.53%
Real Final Sales1.21%1.90%2.36%1.72%2.36%1.57%2.35%2.47%0.62%4.00%0.63%2.17%0.10%




Summary

At best this new release reports an economy with lackluster growth, created at great expense by a combination of unprecedented fiscal and monetary stimulus that have obviously progressed well past the point of diminishing returns. To be fair, many other national governments would be thrilled to be reporting a 1.78% annualized growth rate. But that observation in itself (without mentioning the plunging export numbers) also reflect global economic headwinds that do not bode well for sustaining even lackluster numbers over the balance of the year.

And we continue to note the one truly serious domestic issue within the data:

-- Real per capita disposable incomes took yet another hit. The astonishing annualized contraction of real per capita disposable income has now reached -9.21% -- dwarfing the -7.52% contraction rate recorded in the first quarter of 2009 (the worst quarterly contraction recorded during the official duration of the "Great Recession").

From time to time we may quarrel with the quality of the BEA's deflaters. And frankly we may even find that at face value the lackluster numbers amount to nothing more than a sham "recovery." But the most shocking part of this report is glaringly obvious from the real per capita disposable income numbers: all of the unprecedented fiscal and monetary stimulus has left American households materially worse off than they were two years ago.

And sadly we wonder whether anyone in Washington either notices or really cares.
 
   

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