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"Bringing the measurements of critical economic activities into the twenty-first century by
mining tracking data for an understanding of what American consumers were doing yesterday."

     
  July 28, 2022 - BEA Reports that Second Quarter 2022 GDP Contracted at a -0.93% Rate:

In their first (preliminary) estimate of the US GDP for the second quarter of 2022, the Bureau of Economic Analysis (BEA) reported that the US economy was contracting at a -0.93% annual rate, up 0.65 percentage points (pp) from the prior quarter.

This is the second consecutive quarter that the BEA has reported economic contractions. Consumer spending on goods, commercial spending on fixed investments and inventories all contracted at significant rates, while foreign trade strengthened (along with the dollar), adding a net 1.43pp to the headline number. Meanwhile, the BEA deferred their normal July revision of historic data until September 29, 2022. That restatement of historic data will address data from 2017 to date.

In an earlier release, annualized household disposable income was reported to be $79 lower than in the prior quarter, and the household savings rate was reported to be 5.2%, down 0.4pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 8.86%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 11.02%. 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 -3.18%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a -1.08% rate, down 1.01pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.78%, up 0.47pp from the prior quarter. The combined consumer contribution to the headline number was 0.70%, down 0.54pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be -0.72%, down a material 2.00pp from the prior quarter.

-- Inventories subtracted -2.01% from the headline number, down 1.66pp 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 reported to be -0.33%, up 0.18pp from the prior quarter.

-- The contribution from exports was reported to be 1.92%, up 2.47pp from the prior quarter.

-- Imports subtracted -0.49% annualized 'growth' from the headline number, up 2.20pp from the prior quarter. Foreign trade contributed a net 1.43pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be 1.08%, up 2.31pp 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 reported to have decreased by $79 quarter to quarter. The annualized household savings rate was 5.2% (down 0.4pp from the prior quarter). In the 56 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.15%.



The Numbers

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) $24.9 = $17.0 + $4.6 + $4.3 + $-1.1
% of GDP 100.00% = 68.41% + 18.65% + 17.29% + -4.34%
Contribution to GDP Growth % -0.93% = 0.70% + -2.73% + -0.33% + 1.43%


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

Q2-2022 Q1-2022 Q4-2021 Q3-2021 Q2-2021 Q1-2021 Q4-2020 Q3-2020 Q2-2020 Q1-2020 Q4-2019 Q3-2019
Total GDP Growth -0.93% -1.58% 6.90% 2.30% 6.72% 6.28% 4.54% 33.79% -31.24% -5.13% 1.89% 2.77%
Consumer Goods -1.08% -0.07% 0.28% -2.21% 2.99% 5.69% -0.07% 9.92% -1.89% 0.04% 0.35% 0.99%
Consumer Services 1.78% 1.31% 1.48% 3.57% 4.93% 1.75% 2.34% 15.59% -22.21% -4.83% 0.77% 1.13%
Fixed Investment -0.72% 1.28% 0.50% -0.16% 0.61% 2.25% 2.92% 4.88% -5.63% -0.41% -0.19% 0.54%
Inventories -2.01% -0.35% 5.32% 2.20% -1.26% -2.62% 1.10% 6.84% -4.01% -0.51% -0.99% -0.32%
Government -0.33% -0.51% -0.46% 0.17% -0.36% 0.77% -0.09% -0.19% 0.97% 0.63% 0.52% 0.36%
Exports 1.92% -0.55% 2.24% -0.59% 0.80% -0.30% 2.07% 4.64% -8.34% -1.95% 0.17% -0.08%
Imports -0.49% -2.69% -2.46% -0.68% -0.99% -1.26% -3.73% -7.89% 9.87% 1.90% 1.26% 0.15%
Real Final Sales 1.08% -1.23% 1.58% 0.10% 7.98% 8.90% 3.44% 26.95% -27.23% -4.62% 2.88% 3.09%




Summary and Commentary

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

-- Consumer spending on goods moved deeper into contraction, with the growth rate for all consumer spending declining by about a half percent.

-- Commercial spending on fixed investment also began to contract, primary due to weakening residential construction.

-- Real household income and savings rates continued to shrink. The consumer is in no position to quickly reverse the course of the headline number.

-- The BEA continues to under-recognize inflation. The headline number would have been contracting at a far more dramatic -3.18% rate if the BEA had used inflation data from the Bureau of Labor Statistics (BLS).

At face value this is the second consecutive quarter that the headline number indicated economic contraction. However, the National Bureau of Economic Research (NBER) is the official arbiter of recessions in the US, and they are not especially timely in making their calls. Meanwhile, politicians (and even the FED) will be busy spinning other (currently more favorable) definitions of recessions, including unemployment rates.

Our own go-to source of wisdom, Douglas Adams, once wrote: "If it looks like a duck, and quacks like a duck, we have at least to consider the possibility that we have a small aquatic bird of the family Anatidae on our hands." We couldn't agree more.
 
     

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