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  December 20, 2019 - BEA Revises Third Quarter 2019 GDP Growth Downward to 2.09%:

In their third and final estimate of the US GDP for the third quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.09% annual rate, down -0.04 percentage points (pp) from their previous estimate but still up 0.08pp from the prior quarter.

Although the headline number changed by only -0.04pp, there were two material shifts in the composition of that number. The growth rate for consumer spending on services was revised upward by +0.22pp to +1.02%, while the growth rate for inventories was revised downward by a nearly offsetting -0.20pp to -0.03%. The only other material adjustment in the report was for the growth rate of consumer spending on goods, which was revised downward by -0.08pp to +1.09%.

Annualized household disposable income was revised $2 higher than in the previous report, and the household savings rate was reported to be 7.8%, down -0.1pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 1.72%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was lower at 1.66%. 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 2.18%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 1.09% rate, down -0.08pp from the previous estimate and down -0.65pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.02%, up 0.22pp from the previous report but still down -0.27pp from the prior quarter. The combined consumer contribution to the headline number was 2.11%, up 0.14pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.14%, up 0.04pp from the previous report and up 0.11pp from the prior quarter.

-- Inventories subtracted -0.03% from the headline number, down -0.20pp from the previous report and up 0.88pp from the prior quarter. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity pricing or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The contribution to the headline from governmental spending was revised to 0.30%, up 0.02pp from the previous report and down -0.52pp from the prior quarter.

-- The contribution from exports remained unchanged at 0.11%, up 0.80pp from the prior quarter.

-- Imports subtracted -0.26% annualized 'growth' from the headline number, down -0.04pp from the previous report and down -0.27pp from the prior quarter. Foreign trade contributed a net -0.15pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 2.12%, up 0.16pp from the previous report and down -0.80pp 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 annualized disposable income was revised $2 higher than in the previous estimate. The annualized household savings rate was 7.8% (down -0.1pp from the previous report). In the 45 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.48%.



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) $21.5 = $14.7 + $3.7 + $3.8 + $-.7
% of GDP 100.00% = 68.14% + 17.38% + 17.51% + -3.03%
Contribution to GDP Growth % 2.09% = 2.11% + -0.17% + 0.30% + -0.15%


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

Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017 Q3-2017 Q2-2017 Q1-2017 Q4-2016
Total GDP Growth 2.09% 2.01% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15% 2.30% 2.04%
Consumer Goods 1.09% 1.74% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14% 0.68% 0.41%
Consumer Services 1.02% 1.29% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49% 0.95% 1.29%
Fixed Investment -0.14% -0.25% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48% 1.27% 0.33%
Inventories -0.03% -0.91% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11% -0.70% 1.18%
Government 0.30% 0.82% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24% -0.04% 0.19%
Exports 0.11% -0.69% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20% 0.72% -0.30%
Imports -0.26% 0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51% -0.58% -1.06%
Real Final Sales 2.12% 2.92% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04% 3.00% 0.86%




Summary and Commentary

As might be expected for a second revision, most of this report's changes can be characterized as statistical noise. Our notable observations at this point in time can be summarized as follows:

-- We have had two quarters of roughly +2% growth following a month of 3% growth during the first quarter of 2019. The numbers have not changed materially during the last two quarters, and although we might like slightly higher growth, a steady 2% makes the US economy the envy of most of the developed world.

-- Looking forward, the Fed's forecasting series are of mixed mind. The New York Fed's "Nowcasting" projection for the fourth quarter of 2019 is substantially weaker and well below 1% growth, while the Atlanta Fed's "GDPNow" forecast is actually pointing modestly upward.

-- And the breathlessly reported holiday retail reports are similarly of mixed mind. Not surprisingly it seems to matter which classes of retailers are being sampled -- or perhaps more importantly, which story line or agenda is being promoted.

-- All of which does not address the fact that we have collectively entered a whole new level of political "Fear, Uncertainty and Doubt" ("FUD") -- just as holiday shoppers head out for their final round of hunting and gathering.

In summary, mixed messages are all around us. By selectively choosing among those messages it is possible to build a plausible argument for just about any future economic scenario. In the end we will simply have to wait and see -- and unfortunately the wait is probably until the upcoming quarter is safely in the rear-view mirror.
 
     

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