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

     
  May 26, 2022 - BEA Revises First Quarter 2022 GDP Contraction Downward to -1.52%:

In their second 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 1.52% annual rate, down 0.09 percentage points (pp) from their previous estimate and down 8.42pp from the prior quarter.

In an earlier release, annualized household disposable income was revised $426 lower than in the previous report, and the household savings rate was reported to be 5.6%, down 1.0pp from the previous report.

Except for the sharply lower household disposable income, this report contains only minor revisions. Consumer spending was revised slightly upward while inventories were revised downward.

For this estimate the BEA assumed an effective annualized deflator of 8.15%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was significantly higher at 11.27%. Under estimating inflation results in optimistic growth rates, and if the BEA's nominal data was deflated using CPI-U inflation information the headline contraction number would have been alarmingly worse at -4.77%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be unchanged quarter-to-quarter, up 0.03pp from the previous estimate and down 0.28pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 2.09%, up 0.23pp from the previous report and up 0.61pp from the prior quarter. The combined consumer contribution to the headline number was 2.09%, up 0.26pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to 1.18%, down 0.09pp from the previous report and up 0.68pp from the prior quarter.

-- Inventories subtracted 1.09% from the headline number, down 0.25pp from the previous report and down 6.41pp 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 -0.47%, up 0.01pp from the previous report and down 0.01pp from the prior quarter.

-- The contribution from exports was revised to -0.62%, up 0.06pp from the previous report and down 2.86pp from the prior quarter.

-- According to this report's domestic production focused arithmetic, imports subtracted 2.61% annualized 'growth' from the headline number, down 0.08pp from the previous report and down 0.15pp from the prior quarter. Foreign trade contributed a net -3.23pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to -0.43%, up 0.16pp from the previous report and down 2.01pp 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 $426 lower than in the previous estimate. The annualized household savings rate was 5.6% (down a material 1.0pp from the previous report). In the 55 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.21%.



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 + $4.6 + $4.2 + $-1.2
% of GDP 100.00% = 68.57% + 19.06% + 17.23% + -4.85%
Contribution to GDP Growth % -1.52% = 2.09% + 0.09% + -0.47% + -3.23%


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 -1.52% 6.90% 2.30% 6.72% 6.28% 4.54% 33.79% -31.24% -5.13% 1.89% 2.77% 3.22%
Consumer Goods 0.00% 0.28% -2.21% 2.99% 5.69% -0.07% 9.92% -1.89% 0.04% 0.35% 0.99% 1.42%
Consumer Services 2.09% 1.48% 3.57% 4.93% 1.75% 2.34% 15.59% -22.21% -4.83% 0.77% 1.13% 0.95%
Fixed Investment 1.18% 0.50% -0.16% 0.61% 2.25% 2.92% 4.88% -5.63% -0.41% -0.19% 0.54% 1.06%
Inventories -1.09% 5.32% 2.20% -1.26% -2.62% 1.10% 6.84% -4.01% -0.51% -0.99% -0.32% -0.57%
Government -0.47% -0.46% 0.17% -0.36% 0.77% -0.09% -0.19% 0.97% 0.63% 0.52% 0.36% 0.86%
Exports -0.62% 2.24% -0.59% 0.80% -0.30% 2.07% 4.64% -8.34% -1.95% 0.17% -0.08% -0.26%
Imports -2.61% -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 -0.43% 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:

-- The economy is likely performing materially worse than this report indicates. The BEA has not had to correct for this level of inflation for over 40 years, and it is evidently not very good at doing so.

-- The huge inventory build up that grossly distorted the 4Q-2021 report (remember the media's euphoria over the phenomenal +6.90% headline growth?) has neutralized, but the inevitable inventory draw down has only just begun.

-- Foreign trade removed 3.23% from the headline number. Given the current global economic picture, that is unlikely to improve anytime soon.

-- Household disposable income is getting hammered while the prices of gasoline, food and shelter are soaring. Consumer spending will eventually hit a wall when household "rainy day" funds dry up.

This is setting up a long and hot summer of public discontent -- just in time to further fuel voter angst heading into the 2022 mid-term elections.
 
     

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