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 September 26, 2013 - BEA Leaves 2nd Quarter 2013 GDP Growth Mostly Unchanged At 2.48% Annual Rate:

In their third estimate of the US GDP for the second quarter of 2013, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 2.48% annualized rate, down only slightly from the 2.52% growth rate previously reported for that same quarter. The revision resulted from several minor adjustments, with slower growth in inventories being the largest single component.

Consumer spending on goods and services were not changed materially in this revision. Inventory growth was somewhat lower than previously reported, and the contraction rate for governmental expenditures was also revised lower -- remaining significantly below the contraction levels recorded for much of the past four years.

For this set of revisions the BEA assumed annualized net aggregate inflation of 0.58%. In contrast, during the second quarter (i.e., from March to June) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) rose by 1.04% (annualized), and the price index published by the Billion Prices Project (BPP) rose at an annualized rate of 1.76%. 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 somewhat lower +2.03%. 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 a more modest +1.31% annualized rate.

Finally, real per capita disposable income was revised upward by $14 per year and the personal savings rate was unchanged at 4.5% -- remaining below the savings rates we have typically seen since households began deleveraging in 2008.

Among the notable items in the report:

-- The contribution of consumer expenditures for goods to the headline number weakened slightly to 0.71% (down from the 0.73% previously reported).

-- The contribution made by consumer services improved slightly to 0.53% (from 0.48%).

-- The growth rate contribution from private fixed investments was upgraded somewhat to 0.96% (from 0.90%).

-- Inventories were shown as growing slower than previously estimated, contributing only +0.41% to the headline growth rate (compared to the +0.59% previously reported, and down materially from the revised 0.93% rate in the prior quarter).

-- The negative impact from governmental contraction moderated further to -0.07% -- and this number continued an "improvement" of sorts from the revised -0.82% in the previous quarter.

-- Exports contributed 1.04% to the overall growth rate, down slightly from the 1.11% previously reported (but still up significantly from the -0.18% contraction recorded in the first quarter).

-- And the impact from imports was largely unchanged, now subtracting -1.10% from the headline number -- still mostly offsetting the growth provided by exports.

-- The annualized growth rate for "real final sales of domestic product" improved to 2.07% (and still up sharply from a meager 0.21% in the previous quarter). This is the BEA's "bottom line" measurement of the economy -- which remains weaker than the headline number because of the ongoing buildup of inventories.

-- And as mentioned above, real per-capita disposable income improved and it is now reported to have increased by an annualized $254 from quarter to quarter.



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)$16.7=$11.4+$2.6+$3.1+$-0.5
% of GDP100.0%=68.6%+15.8%+18.7%+-3.1%
Contribution to GDP Growth %2.48%=1.24%+1.37%+-0.07%+-0.06%


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 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

2Q-20131Q-20134Q-20123Q-20122Q-20121Q-20124Q-20113Q-20112Q-20111Q-20114Q-20103Q-20102Q-20101Q-2010
Total GDP Growth2.48%1.14%0.14%2.78%1.20%3.71%4.86%1.37%3.19%-1.29%2.80%2.78%3.91%1.59%
Consumer Goods0.71%0.85%0.85%0.84%0.50%1.04%1.14%0.29%0.05%0.60%1.66%0.85%1.14%0.88%
Consumer Services0.53%0.69%0.29%0.31%0.78%0.94%0.51%1.14%0.98%0.81%1.21%1.02%1.07%0.54%
Fixed Investment0.96%-0.23%1.63%0.39%0.68%1.21%1.39%1.96%1.16%-0.05%1.13%-0.04%1.77%0.11%
Inventories0.41%0.93%-2.00%0.60%-0.91%0.36%2.73%-1.60%0.72%-1.06%-1.64%1.90%1.09%1.66%
Government-0.07%-0.82%-1.31%0.67%0.05%-0.28%-0.31%-0.52%-0.25%-1.61%-0.87%-0.07%0.61%-0.63%
Exports1.04%-0.18%0.15%0.05%0.51%0.56%0.38%0.92%0.64%0.48%1.47%1.27%1.10%0.73%
Imports-1.10%-0.10%0.53%-0.08%-0.41%-0.12%-0.98%-0.82%-0.11%-0.46%-0.15%-2.15%-2.87%-1.70%
Real Final Sales2.07%0.21%2.14%2.18%2.11%3.35%2.13%2.97%2.47%-0.23%4.44%0.88%2.82%-0.07%




Summary

Since this set of revisions is neither material nor in any sense final -- the BEA being very fond of subsequent massive annual revisions that most recently dated back to 1929 -- it is probably time to step back and notice one of the major changes in the composition of the numbers over the past year or so, which appears lost in the current budget deficit and debt debates:

Governmental expenditures are no longer contracting at a rate that significantly impacts the headline number.

In fact, the era of contracting governments seems to have ended. In the first quarter of 2011 aggregate governmental belt-tightening was shaving -1.61% from the headline number, and as recently as the 4th quarter of 2012 the headline number was being pulled down -1.31% by shrinking governmental expenditures (although in "fairness" it should be mentioned that the 4Q-2012 "contraction" included the one-quarter reversal of the massive 3Q-2012 DOD pre-election contracting spree that significantly and artificially inflated the headline number just days before the election -- pulling contract spending forward either to game the numbers or avoid congressional sequesters, depending on how cynical you might be).

Changes in governmental expenditure rates generally lag the private sector economic spending by a year or so. During the "Great Recession" aggregate (and stimulus enhanced) real governmental expenditures didn't peak until the third quarter of 2009 -- some 10 quarters after real governmental receipts peaked and well after the private sector had tanked. Since that 3Q-2009 spending peak, aggregate real governmental spending has fallen 6.7% (5.5% at the Federal level and 7.5% at the state and local levels) -- certainly material, but measured from an unsustainable and stimulus laden peak.

Not surprisingly, with stimulus packages in full swing the real aggregate deficit rates peaked in the second quarter of 2009. Since then the aggregate governmental deficit rates have halved -- but they remain over twice the levels typical of 2007 and earlier.

We are concerned that the happy talk of "recovery" and 2.5% growth rates have led to a political climate where real aggregate governmental deficits running at twice the pre-recession levels seems to be some sort of acceptable new norm -- and that the numbers for the recent quarters seem to signal that the will for continuing austerity has reached the point of political fatigue long before any real balance has been achieved between governmental receipts and expenditures.
 
   

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