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  September 29, 2022 - BEA Revises Second Quarter 2022 GDP Contraction Downward to -0.58%:

In their third and final 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 -0.58% annual rate, down -0.01 percentage points (pp) from their previous estimate and up 1.06pp from the prior quarter.

There are no material change in the headline number or the net expenditures portions of this report, with two exceptions: expenditures on consumer services was revised 0.43pp higher, but that was largely offset by a 0.37pp decrease in the contribution from exports. The other revisions in this report can be characterized as statistical noise.

However, in an earlier release, there were material revisions in the annualized household disposable income, which was revised $234 lower than in the previous report, and the household savings rate was reported to be 3.4%, down -1.7pp from the previous report. Both of these revisions are significant and indicate greater stress on household budgets.

For this estimate the BEA assumed an effective annualized deflator of 9.10%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was significantly 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 -2.55%.

Additionally, in this report the BEA released its annual revisions to historical data, this time revising data back through 2017. As expected, the chaotic COVID impacted second and third quarters of 2020 had the greatest revisions, and in both quarters the revisions were upward. In fact, the BEA generally revised the historical data upwards, with the average quarterly revision a positive 0.18pp.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a 0.61% rate, down 0.04pp from the previous estimate and down 0.59pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.99%, up 0.43pp from the previous report and up 1.06pp from the prior quarter. The combined consumer contribution to the headline number was 1.38%, up 0.39pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.92%, down 0.08pp from the previous report and down 1.75pp from the prior quarter.

-- Inventories subtracted 1.91% from the headline number, down 0.08pp from the previous report and down 2.06pp 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 -0.29%, up 0.03pp from the previous report and up 0.11pp from the prior quarter.

-- The contribution from exports was revised to 1.51%, down 0.37pp from the previous report and up 2.04pp from the prior quarter.

-- Imports subtracted 0.35% annualized 'growth' from the headline number, up 0.10pp from the previous report and up 2.25pp from the prior quarter. Foreign trade contributed a net 1.16pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 1.33%, up 0.07pp from the previous report and up 3.12pp 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 $234 lower than in the previous estimate. The annualized household savings rate was 3.4% (down 1.7pp from the previous report). In the 56 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.12%.



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) $25.2 = $17.3 + $4.6 + $4.4 + $-1.0
% of GDP 100.00% = 68.37% + 18.26% + 17.48% + -4.10%
Contribution to GDP Growth % -0.58% = 1.38% + -2.83% + -0.29% + 1.16%


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 -0.58% -1.64% 6.94% 2.66% 7.00% 6.30% 3.90% 35.33% -29.87% -4.62% 1.79% 3.60%
Consumer Goods -0.61% -0.02% 0.55% -1.96% 2.65% 5.26% 0.06% 10.85% -2.07% -0.02% 0.57% 1.18%
Consumer Services 1.99% 0.93% 1.58% 3.94% 5.19% 1.71% 2.47% 15.50% -21.01% -4.23% 0.98% 1.09%
Fixed Investment -0.92% 0.83% 0.12% -0.18% 1.05% 1.70% 2.76% 5.12% -5.30% -0.54% -0.24% 0.71%
Inventories -1.91% 0.15% 5.01% 1.96% -0.75% -2.52% 0.30% 7.57% -4.35% -0.35% -1.24% -0.24%
Government -0.29% -0.40% -0.16% -0.02% -0.54% 1.18% -0.01% -0.97% 1.57% 0.57% 0.41% 0.58%
Exports 1.51% -0.53% 2.37% -0.13% 0.51% 0.03% 2.20% 4.98% -8.66% -1.82% 0.13% 0.02%
Imports -0.35% -2.60% -2.53% -0.95% -1.11% -1.06% -3.88% -7.72% 9.95% 1.77% 1.18% 0.26%
Real Final Sales 1.33% -1.79% 1.93% 0.70% 7.75% 8.82% 3.60% 27.76% -25.52% -4.27% 3.03% 3.84%




Summary and Commentary

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

-- The headline number probably benefits substantially from under reporting of inflation.

-- Although the BEA's "bottom line" number ("Real Final Sales", which excludes inventories) is positive, there is weakness in consumer spending on goods and commercial fixed investments.

-- Household real disposable income continues to get hammered. The most telling number is household savings, which is plunging as households budgets continue to get squeezed.

The next report, covering the third quarter, will be released just prior to the mid-term elections. It should be interesting.
 
     

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