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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."

     
  January 26, 2023 - BEA Reports that Fourth Quarter 2022 GDP Grew at a 2.88% Rate:

In their first (preliminary) estimate of the US GDP for the fourth quarter of 2022, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.88% annual rate, down 0.37 percentage points (pp) from the prior quarter.

The fourth quarter was one of relatively weak growth in consumer spending (with an aggregate goods and services growth rate of 1.42%, down 0.13pp from the prior quarter) and growing inventories (contributing 1.46%, over half of the headline growth). This meant that the BEA's 'bottom line' growth rate (the 'real final sales of domestic product', which excludes the inventory data) was roughly half of the headline number at 1.42%. Critically, the contraction of spending for commercial/private fixed investment accelerated, subtracting 1.20% from the headline number.

In an earlier release, annualized household disposable income was reported to be $299 higher than in the prior quarter, and the household savings rate was reported to be 2.9%, up 0.2pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 3.53%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was lower at 1.83%. 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 4.67%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 0.26% rate, up 0.34pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.16%, down 0.47pp from the prior quarter. The combined consumer contribution to the headline number was 1.42%, down 0.13pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be -1.20%, down 0.58pp from the prior quarter.

-- Inventories added 1.46% to the headline number, up 2.65pp 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 0.64%, down 0.01pp from the prior quarter.

-- The contribution from exports was reported to be -0.15%, down 1.80pp from the prior quarter.

-- Imports added 0.71% annualized 'growth' to the headline number, down 0.50pp from the prior quarter. Foreign trade contributed a net 0.56pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be 1.42%, down 3.02pp 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 $299 quarter to quarter. The annualized household savings rate was 2.9% (up 0.2pp from the prior quarter). In the 58 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.11%.



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) $26.1 = $17.8 + $4.6 + $4.6 + $-.8
% of GDP 100.00% = 68.00% + 17.76% + 17.48% + -3.24%
Contribution to GDP Growth % 2.88% = 1.42% + 0.26% + 0.64% + 0.56%


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

Q4-2022 Q3-2022 Q2-2022 Q1-2022 Q4-2021 Q3-2021 Q2-2021 Q1-2021 Q4-2020 Q3-2020 Q2-2020 Q1-2020
Total GDP Growth 2.88% 3.25% -0.58% -1.64% 6.94% 2.66% 7.00% 6.30% 3.90% 35.33% -29.87% -4.62%
Consumer Goods 0.26% -0.08% -0.61% -0.02% 0.55% -1.96% 2.65% 5.26% 0.06% 10.85% -2.07% -0.02%
Consumer Services 1.16% 1.63% 1.99% 0.93% 1.58% 3.94% 5.19% 1.71% 2.47% 15.50% -21.01% -4.23%
Fixed Investment -1.20% -0.62% -0.92% 0.83% 0.12% -0.18% 1.05% 1.70% 2.76% 5.12% -5.30% -0.54%
Inventories 1.46% -1.19% -1.91% 0.15% 5.01% 1.96% -0.75% -2.52% 0.30% 7.57% -4.35% -0.35%
Government 0.64% 0.65% -0.29% -0.40% -0.16% -0.02% -0.54% 1.18% -0.01% -0.97% 1.57% 0.57%
Exports -0.15% 1.65% 1.51% -0.53% 2.37% -0.13% 0.51% 0.03% 2.20% 4.98% -8.66% -1.82%
Imports 0.71% 1.21% -0.35% -2.60% -2.53% -0.95% -1.11% -1.06% -3.88% -7.72% 9.95% 1.77%
Real Final Sales 1.42% 4.44% 1.33% -1.79% 1.93% 0.70% 7.75% 8.82% 3.60% 27.76% -25.52% -4.27%




Summary and Commentary

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

-- The headline number seems to be close enough to 3% to be respectable. This masks relatively weak growth in consumer spending and materially contracting fixed investments.

-- The contraction in fixed investments can be found in IT spending and residential construction, two sectors that we might expect to be driving a healthy economy.

-- Household disposable income did tick upward, although savings rates remain near record lows. Households remain cautious in their spending, as the lackluster consumer goods and services growth rates and growing inventories confirm.

-- Federal agencies continue to have problems agreeing on their measures of inflation. The spread between the BEA and BLS metrics is material, and it makes policy decisions even more difficult.

This is yet another case where the headline number is better than the underlying details might warrant. This report simply does not show an economy that is ready for explosive growth.

Please note that moving forward we will be providing our GDP reporting analysis only once each quarter, upon the release of the BEA's initial (preliminary) report for each quarter (i.e., in January, April, July and October).
 
     

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