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  August 25, 2022 - BEA Revises Second Quarter 2022 GDP "Growth" Upward to -0.57%:

In their second 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 0.57% annual rate, up 0.36 percentage points (pp) from their previous estimate and up 1.01pp from the prior quarter.

Consumer spending was revised modestly upward, while commercial fixed investments was revised downward (primarily due to weakening residential construction). And inventories remain very high, particularly in the retail sectors.

The report is something of a split decision: although the headline number remained in negative territory for the second consecutive quarter, the BEA's 'bottom line' real final sales of domestic product (which excludes inventory fluctuations) was reported to be positive. People looking for a definitive signal of a recession will still need to wait while the economic signals officially sort themselves out.

In an earlier release, annualized household disposable income was revised $13 lower than in the previous report, and the household savings rate was reported to be 5.1%, down 0.1pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 9.01%. 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 -2.64%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a 0.57% rate, up 0.51pp from the previous estimate and down 0.50pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.56%, down 0.22pp from the previous report and up 0.25pp from the prior quarter. The combined consumer contribution to the headline number was 0.99%, up 0.29pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.84%, down 0.12pp from the previous report and down 2.12pp from the prior quarter.

-- Inventories subtracted 1.83% from the headline number, up 0.18pp from the previous report and down 1.48pp 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 -0.32%, up 0.01pp from the previous report and up 0.19pp from the prior quarter.

-- The contribution from exports was revised to 1.88%, down 0.04pp from the previous report and up 2.43pp from the prior quarter.

-- Imports subtracted 0.45% annualized 'growth' from the headline number, up 0.04pp from the previous report and up 2.24pp 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 revised to 1.26%, up 0.18pp from the previous report and up 2.49pp 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 $13 lower than in the previous estimate. The annualized household savings rate was 5.1% (down 0.1pp from the previous report). 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 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) $24.9 = $17.0 + $4.6 + $4.3 + $-1.1
% of GDP 100.00% = 68.40% + 18.66% + 17.30% + -4.35%
Contribution to GDP Growth % -0.57% = 0.99% + -2.67% + -0.32% + 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 -0.57% -1.58% 6.90% 2.30% 6.72% 6.28% 4.54% 33.79% -31.24% -5.13% 1.89% 2.77%
Consumer Goods -0.57% -0.07% 0.28% -2.21% 2.99% 5.69% -0.07% 9.92% -1.89% 0.04% 0.35% 0.99%
Consumer Services 1.56% 1.31% 1.48% 3.57% 4.93% 1.75% 2.34% 15.59% -22.21% -4.83% 0.77% 1.13%
Fixed Investment -0.84% 1.28% 0.50% -0.16% 0.61% 2.25% 2.92% 4.88% -5.63% -0.41% -0.19% 0.54%
Inventories -1.83% -0.35% 5.32% 2.20% -1.26% -2.62% 1.10% 6.84% -4.01% -0.51% -0.99% -0.32%
Government -0.32% -0.51% -0.46% 0.17% -0.36% 0.77% -0.09% -0.19% 0.97% 0.63% 0.52% 0.36%
Exports 1.88% -0.55% 2.24% -0.59% 0.80% -0.30% 2.07% 4.64% -8.34% -1.95% 0.17% -0.08%
Imports -0.45% -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 1.26% -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:

-- This report's headline number benefits significantly from the BEA's under recognition of inflation.

-- Households continue to be hammered by incomes that are failing to keep up with that inflation.

This report shows an economy likely transitioning towards a recession. It is being pummeled by non-traditional inflation that policy makers are fighting using traditional tools. The next few quarters will at least be interesting.
 
     

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