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

     
  October 27, 2022 - BEA Reports that Third Quarter 2022 GDP Grew at a 2.56% Rate:

In their first (preliminary) estimate of the US GDP for the third quarter of 2022, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.56% annual rate, up 3.14 percentage points (pp) from the prior quarter.

The improvement in the headline number was almost entirely the result of slowing inventory draw downs, increased governmental spending (mostly Federal) and increasing imports. Changes in consumer spending had a net negative impact on the headline number, and consumer spending on goods remained in contraction.

In an earlier release, annualized household disposable income was reported to be $150 higher than in the prior quarter, and the household savings rate was reported to be 3.3%, down a significant 1.8pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 4.07%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was lower at 1.96%. 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 4.78%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a 0.28% rate, up 0.33pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.24%, down 0.75pp from the prior quarter. The combined consumer contribution to the headline number was 0.96%, down 0.42pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be -0.89%, up 0.03pp from the prior quarter.

-- Inventories subtracted 0.70% from the headline number, up 1.21pp 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 0.42%, up 0.71pp from the prior quarter.

-- The contribution from exports was reported to be 1.63%, up 0.12pp from the prior quarter.

-- Imports added 1.14% annualized 'growth' to the headline number, up a material 1.49pp from the prior quarter. Foreign trade contributed a net 2.77pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be 3.26%, up 1.93pp 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 increased by $150 quarter to quarter. The annualized household savings rate was 3.3% (down 1.8pp from the prior quarter). In the 57 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.12%.



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) $25.7 = $17.5 + $4.6 + $4.5 + $-.9
% of GDP 100.00% = 68.19% + 17.89% + 17.43% + -3.51%
Contribution to GDP Growth % 2.56% = 0.96% + -1.59% + 0.42% + 2.77%


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

Q3-2022 Q2-2022 Q1-2022 Q4-2021 Q3-2021 Q2-2021 Q1-2021 Q4-2020 Q3-2020 Q2-2020 Q1-2020 Q4-2019
Total GDP Growth 2.56% -0.58% -1.64% 6.94% 2.66% 7.00% 6.30% 3.90% 35.33% -29.87% -4.62% 1.79%
Consumer Goods -0.28% -0.61% -0.02% 0.55% -1.96% 2.65% 5.26% 0.06% 10.85% -2.07% -0.02% 0.57%
Consumer Services 1.24% 1.99% 0.93% 1.58% 3.94% 5.19% 1.71% 2.47% 15.50% -21.01% -4.23% 0.98%
Fixed Investment -0.89% -0.92% 0.83% 0.12% -0.18% 1.05% 1.70% 2.76% 5.12% -5.30% -0.54% -0.24%
Inventories -0.70% -1.91% 0.15% 5.01% 1.96% -0.75% -2.52% 0.30% 7.57% -4.35% -0.35% -1.24%
Government 0.42% -0.29% -0.40% -0.16% -0.02% -0.54% 1.18% -0.01% -0.97% 1.57% 0.57% 0.41%
Exports 1.63% 1.51% -0.53% 2.37% -0.13% 0.51% 0.03% 2.20% 4.98% -8.66% -1.82% 0.13%
Imports 1.14% -0.35% -2.60% -2.53% -0.95% -1.11% -1.06% -3.88% -7.72% 9.95% 1.77% 1.18%
Real Final Sales 3.26% 1.33% -1.79% 1.93% 0.70% 7.75% 8.82% 3.60% 27.76% -25.52% -4.27% 3.03%




Summary and Commentary

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

-- This report benefited greatly from the likely temporary pause in inflationary pressure, primarily energy related.

-- The headline number masks the reality of consumer spending and the state of household finances. Households are still hurting, as evidenced by the low savings rate, and consumer spending is increasing at less than a 1% rate.

-- Fixed investment spending remains in contraction.

-- Through the magic of the BEA's arithmetic, imports added 1.14% annualized 'growth' to the headline domestic product number.

-- As usual, Federal spending spiked in the last quarter of the fiscal year.

Cynics will not be surprised that the headline number released just days before the mid-term elections shows moderate growth. Nonetheless, the reality is that household finances remain very tight.
 
     

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