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

     
  May 28, 2020 - BEA Revises First Quarter 2020 GDP Contraction Downward to -5.06%:

In their second estimate of the US GDP for the first quarter of 2020, the Bureau of Economic Analysis (BEA) reported that the US economy was contracting at a -5.06% annual rate, down -0.27 percentage points (pp) from their previous estimate and down -7.18pp from the prior quarter.

The overall downward revision in the headline number was in spite of a +0.57pp upward revision to their previous consumer spending estimate. The largest change for this reporting cycle was a -0.90pp downward revision to inventories. Since inventories are not reflected in the BEA's own 'bottom line' Real Final Sales, that number was revised upward +0.63pp to a somewhat better -3.63% contraction. The other line item revisions were not material.

Annualized household disposable income was revised $100 higher than in the previous report, and the household savings rate was reported to be 9.6%, unchanged from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 1.61%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was much lower at -0.76%. 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 -2.77%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 0.06% rate, up 0.33pp from the previous estimate and down -0.06pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be -4.75%, up 0.24pp from the previous report and down -5.87pp from the prior quarter. The combined consumer contribution to the headline number was -4.69%, up 0.57pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.41%, up 0.02pp from the previous report and down -0.32pp from the prior quarter.

-- Inventories subtracted -1.43% from the headline number, down -0.90pp from the previous report and down -0.45pp 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 0.15%, up 0.02pp from the previous report and down -0.29pp from the prior quarter.

-- The contribution from exports was revised to -1.02%, unchanged from the previous report and down -1.26pp from the prior quarter.

-- Imports added 2.34% annualized 'growth' to the headline number, up 0.02pp from the previous report and up 1.07pp from the prior quarter. Foreign trade contributed a net 1.32pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to -3.63%, up 0.63pp from the previous report and down -6.73pp 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 $100 higher than in the previous estimate. The annualized household savings rate was 9.6% (unchanged from the previous report). In the 47 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.47%.



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 = $14.6 + $3.6 + $3.9 + $-.5
% of GDP 100.00% = 67.72% + 16.84% + 17.88% + -2.44%
Contribution to GDP Growth % -5.06% = -4.69% + -1.84% + 0.15% + 1.32%


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

Q1-2020 Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017 Q3-2017 Q2-2017
Total GDP Growth -5.06% 2.12% 2.09% 2.01% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15%
Consumer Goods 0.06% 0.12% 1.09% 1.74% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14%
Consumer Services -4.75% 1.12% 1.02% 1.29% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49%
Fixed Investment -0.41% -0.09% -0.14% -0.25% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48%
Inventories -1.43% -0.98% -0.03% -0.91% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11%
Government 0.15% 0.44% 0.30% 0.82% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24%
Exports -1.02% 0.24% 0.11% -0.69% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20%
Imports 2.34% 1.27% -0.26% 0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51%
Real Final Sales -3.63% 3.10% 2.12% 2.92% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04%




Summary and Commentary

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

-- As expected, this report's headline number is lower than the previous report. But the cause of the downward revision to the headline was inventories, not consumers.

-- Consumer spending was reported to be contracting at a -4.69% annualized rate. But this was actually up 0.57pp from the previous report. All of that reported contraction is in spending for consumer services, and spending on goods is now reported to have continued modest growth.

The BEA's previous report was a ball-park 'guesstimate' place-holder under circumstances where their measuring methodologies are woefully inadequate to deal with an economy in drastic transition -- and in a political environment where they wanted to be out in front with the bad news. As a practical matter, they won't even have a good handle on the true state of the economy when initially reporting a much worse second quarter and doing their annual July historical revisions.

If we now understand the value of national and global pandemic response planning exercises, we might also understand the need for more timely reporting from the BEA (e.g., month-by-month series instead of quarterly series, based on something far closer to real-time transaction data). Otherwise you will end up with Congress tossing around multi-trillion dollar relief packages with no quantitative idea about how much of what kind of aid is truly needed.
 
     

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