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  June 29, 2022 - BEA Revises First Quarter 2022 GDP Contraction Downward to -1.58%:

In their third and final estimate of the US GDP for the first quarter of 2022, the Bureau of Economic Analysis (BEA) reported that the US economy was contracting at a -1.58% annual rate, down 0.06 percentage points (pp) from their previous estimate and down 8.48pp from the prior quarter.

Although the headline number did not change significantly, there were material revisions within the report's line items: consumer spending on services was revised downward by 0.78pp, while inventories were increased by a nearly offsetting 0.74pp. Neither of these changes indicate a healthy economy. All of the other line item changes can be considered statistical noise.

In an earlier release, annualized household disposable income was revised $136 lower than in the previous report, and the household savings rate was reported to be 5.6%, unchanged from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 8.26%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was considerably higher at a recently unprecedented 11.27% rate. 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 dramatically lower at -4.72%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a -0.07% rate, down 0.07pp from the previous estimate and down 0.35pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.31%, down 0.78pp from the previous report and down 0.17pp from the prior quarter. The combined consumer contribution to the headline number was 1.24%, down 0.85pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to 1.28%, up 0.10pp from the previous report and up 0.78pp from the prior quarter.

-- Inventories subtracted 0.35% from the headline number, up 0.74pp from the previous report and down 5.67pp 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 -0.51%, down 0.04pp from the previous report and down 0.05pp from the prior quarter.

-- The contribution from exports was revised to -0.55%, up 0.07pp from the previous report and down 2.79pp from the prior quarter.

-- Imports subtracted -2.69% annualized 'growth' from the purely 'domestic production' headline number, down 0.08pp from the previous report and down 0.23pp from the prior quarter. Foreign trade contributed a net -3.24pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to -1.23%, down 0.80pp from the previous report and down 2.81pp 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 $136 lower than in the previous estimate. The annualized household savings rate was 5.6% (unchanged from the previous report). In the 55 quarters since 2Q-2008 (during the last "Great Recession") the cumulative annualized growth rate for real per-capita disposable income has been 1.19%.



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) $24.4 = $16.7 + $4.7 + $4.2 + $-1.2
% of GDP 100.00% = 68.36% + 19.25% + 17.22% + -4.83%
Contribution to GDP Growth % -1.58% = 1.24% + 0.93% + -0.51% + -3.24%


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

Q1-2022 Q4-2021 Q3-2021 Q2-2021 Q1-2021 Q4-2020 Q3-2020 Q2-2020 Q1-2020 Q4-2019 Q3-2019 Q2-2019
Total GDP Growth -1.58% 6.90% 2.30% 6.72% 6.28% 4.54% 33.79% -31.24% -5.13% 1.89% 2.77% 3.22%
Consumer Goods -0.07% 0.28% -2.21% 2.99% 5.69% -0.07% 9.92% -1.89% 0.04% 0.35% 0.99% 1.42%
Consumer Services 1.31% 1.48% 3.57% 4.93% 1.75% 2.34% 15.59% -22.21% -4.83% 0.77% 1.13% 0.95%
Fixed Investment 1.28% 0.50% -0.16% 0.61% 2.25% 2.92% 4.88% -5.63% -0.41% -0.19% 0.54% 1.06%
Inventories -0.35% 5.32% 2.20% -1.26% -2.62% 1.10% 6.84% -4.01% -0.51% -0.99% -0.32% -0.57%
Government -0.51% -0.46% 0.17% -0.36% 0.77% -0.09% -0.19% 0.97% 0.63% 0.52% 0.36% 0.86%
Exports -0.55% 2.24% -0.59% 0.80% -0.30% 2.07% 4.64% -8.34% -1.95% 0.17% -0.08% -0.26%
Imports -2.69% -2.46% -0.68% -0.99% -1.26% -3.73% -7.89% 9.87% 1.90% 1.26% 0.15% -0.24%
Real Final Sales -1.23% 1.58% 0.10% 7.98% 8.90% 3.44% 26.95% -27.23% -4.62% 2.88% 3.09% 3.79%




Summary and Commentary

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

-- Neither the softening of spending on services nor the upward revision to inventories bode particularly well for the economy.

-- The ongoing downward revisions to real household disposable income are problematic.

-- The economy is likely far worse than recorded in this release, due to the BEA's drastic under-reporting of inflation.

Unfortunately, it is probable that none of the key factors that caused the US economy to contract during the first quarter of 2022 have improved materially in the interim. The first quarter downturn was not a "one-off" anomaly that will be totally forgotten long before the fall elections.
 
     

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