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mining tracking data for an understanding of what American consumers were doing yesterday."

     
  February 27, 2020 - BEA Leaves Fourth Quarter 2019 GDP Growth Unchanged At 2.09%:

In their second estimate of the US GDP for the fourth quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.09% annual rate, up 0.01 percentage points (pp) from their previous estimate and unchanged from the prior quarter.

There were no material changes reflected in this report. The revisions recorded can be regarded as statistical noise. Even the one minor reduction in reported consumer spending on goods was offset by an upward revision to inventories.

Annualized household disposable income was revised -$80 lower than in the previous report, and the household savings rate was reported to be 7.7%, unchanged from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 1.35%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 2.92%. 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 0.55%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 0.14% rate, down -0.12pp from the previous estimate and down -0.95pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.03%, up 0.09pp from the previous report and up 0.01pp from the prior quarter. The combined consumer contribution to the headline number was 1.17%, down -0.03pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.09%, down -0.10pp from the previous report and up 0.05pp from the prior quarter.

-- Inventories subtracted -0.98% from the headline number, up 0.11pp from the previous report and down -0.95pp 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 0.46%, down -0.01pp from the previous report and up 0.16pp from the prior quarter.

-- The contribution from exports was revised to 0.24%, up 0.07pp from the previous report and up 0.13pp from the prior quarter.

-- Imports added 1.29% annualized 'growth' to the headline number, down -0.03pp from the previous report and up 1.55pp from the prior quarter. Foreign trade contributed a net 1.53pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 3.07%, down -0.10pp from the previous report and up 0.95pp 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 -$80 lower than in the previous estimate. The annualized household savings rate was 7.7% (unchanged from the previous report). In the 46 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) $21.7 = $14.8 + $3.7 + $3.8 + $-.6
% of GDP 100.00% = 68.07% + 17.03% + 17.56% + -2.66%
Contribution to GDP Growth % 2.09% = 1.17% + -1.07% + 0.46% + 1.53%


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

Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017 Q3-2017 Q2-2017 Q1-2017
Total GDP Growth 2.09% 2.09% 2.01% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15% 2.30%
Consumer Goods 0.14% 1.09% 1.74% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14% 0.68%
Consumer Services 1.03% 1.02% 1.29% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49% 0.95%
Fixed Investment -0.09% -0.14% -0.25% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48% 1.27%
Inventories -0.98% -0.03% -0.91% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11% -0.70%
Government 0.46% 0.30% 0.82% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24% -0.04%
Exports 0.24% 0.11% -0.69% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20% 0.72%
Imports 1.29% -0.26% 0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51% -0.58%
Real Final Sales 3.07% 2.12% 2.92% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04% 3.00%




Summary and Commentary

The key points of this report can be summarized as follows:

-- There were no reported material changes in a report that can be characterized as statistical noise.

-- Both consumer spending and commercial investments are weak.

-- The headline number is boosted by questionable inflationary assumptions and the BEA's logic for dealing with reduced imports (largely from China).

-- The quarter in question was one of high political theater/drama, which can explain a significant amount of the tepid consumer spending.

We probably do not need to note that all of this reporting is for a quarter before the widespread impact of the new corona virus. It could be argued that US economic growth had already topped by the fourth quarter of 2019, making it more vulnerable that usual to any sort of "Black Swan." And a Black Swan is exactly what we now see flying out of China.


 
     

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