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

     
  July 27, 2023 - BEA Reports that Second Quarter 2023 GDP Grew at a 2.41% Rate:

In their first (preliminary) estimate of the US GDP for the second quarter of 2023, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.41% annual rate, up 0.42 percentage points (pp) from the prior quarter.

Although the growth rates for consumer spending on both goods and services cooled significantly, the headline number stayed above 2% due to materially improved growth rates in inventories and fixed investments. Exports contracted during the quarter, while imports grew enough to neutralize the impact of foreign trade on the headline.

In an earlier release, annualized household disposable income was reported to be $231 higher than in the prior quarter, and the household savings rate was reported to be 4.4%, down 0.4pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 2.22%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was slightly higher at 2.72%. 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 1.96%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 0.16% rate, down 1.18pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 0.95%, down 0.49pp from the prior quarter. The combined consumer contribution to the headline number was 1.11%, down 1.67pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be 0.83%, up 0.91pp from the prior quarter.

-- Inventories added 0.14% to the headline number, up 2.28pp 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 0.45%, down 0.40pp from the prior quarter.

-- The contribution from exports was reported to be -1.28%, down 2.14pp from the prior quarter.

-- Imports added 1.16% annualized 'growth' to the headline number, up 1.44pp from the prior quarter. Foreign trade contributed a net -0.12pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be 2.27%, down 1.86pp 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 $231 quarter to quarter. The annualized household savings rate was 4.4% (down 0.4pp from the prior quarter). In the 60 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.26%.



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) $26.8 = $18.3 + $4.6 + $4.7 + $-.8
% of GDP 100.00% = 68.21% + 17.30% + 17.46% + -2.97%
Contribution to GDP Growth % 2.41% = 1.11% + 0.97% + 0.45% + -0.12%


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

Q2-2023 Q1-2023 Q4-2022 Q3-2022 Q2-2022 Q1-2022 Q4-2021 Q3-2021 Q2-2021 Q1-2021 Q4-2020 Q3-2020
Total GDP Growth 2.41% 1.99% 2.57% 3.25% -0.58% -1.64% 6.94% 2.66% 7.00% 6.30% 3.90% 35.33%
Consumer Goods 0.16% 1.34% -0.01% -0.08% -0.61% -0.02% 0.55% -1.96% 2.65% 5.26% 0.06% 10.85%
Consumer Services 0.95% 1.44% 0.72% 1.63% 1.99% 0.93% 1.58% 3.94% 5.19% 1.71% 2.47% 15.50%
Fixed Investment 0.83% -0.08% -0.68% -0.62% -0.92% 0.83% 0.12% -0.18% 1.05% 1.70% 2.76% 5.12%
Inventories 0.14% -2.14% 1.47% -1.19% -1.91% 0.15% 5.01% 1.96% -0.75% -2.52% 0.30% 7.57%
Government 0.45% 0.85% 0.65% 0.65% -0.29% -0.40% -0.16% -0.02% -0.54% 1.18% -0.01% -0.97%
Exports -1.28% 0.86% -0.44% 1.65% 1.51% -0.53% 2.37% -0.13% 0.51% 0.03% 2.20% 4.98%
Imports 1.16% -0.28% 0.86% 1.21% -0.35% -2.60% -2.53% -0.95% -1.11% -1.06% -3.88% -7.72%
Real Final Sales 2.27% 4.13% 1.10% 4.44% 1.33% -1.79% 1.93% 0.70% 7.75% 8.82% 3.60% 27.76%




Summary and Commentary

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

-- The consumer spending growth rate softened significantly, contributing only 1.11% to the headline number. This was down 1.67pp from the prior quarter.

-- The lower growth rate in consumer spending was consistent with the continued erosion of the household savings rate, indicating that households are finding their budgets tighter than they might like. Although inflation has moderated, household incomes still have some catching up to do.

-- The BEA's own "bottom line" (real final sales) essentially halved from the prior quarter.

At face value this was a good report, since once again the headline number falls into the "Goldilocks" zone.
 
     

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