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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."


Monthly Weighted Composite Consumer Leading Indicator for Past 48 Months



Monthly Weighted Composite Consumer Leading Indicator for Past 48 Months


Last 10 Monthly Index Values
Date:02/201903/201904/201905/201906/201907/201908/201909/201910/201911/2019
Value:97.9697.5299.9897.9397.8999.12102.35103.54100.2798.69


Daily Growth Index Past 60 Days


 Daily Growth Index Past 60 Days(1): 
 
Chart
(Click here for best resolution)
 
 Notes:
  (1) The daily values for the Consumer Metrics Institute's 91-day 'Trailing Quarter' Growth Index over the past 60 days. Please see our Frequently Asked Questions page for a more complete description of our Growth Index.


 


Daily Growth Index -vs- Full GDP Past 48 Months


 Growth Index -vs- Full GDP, Past 4 Years(2): 
 
Chart
(Click here for best resolution)
 
 Notes:
  (2) The Consumer Metrics Institute's 91-day 'Trailing Quarter' Growth Index -vs- BEA's Quarterly Full GDP Growth Rates over past 4 years. The quarterly GDP growth rates are shown as 3-month plateaus in the graph. The Consumer Metrics Institute's Growth Index is plotted as a monthly average.


 


BEA's "Real" GDP -vs- BPP Deflated "Nominal" GDP, Past 4 Years


 BEA "Real" GDP -vs- BPP Deflated "Nominal" GDP, Past 4 Years(3,4): 
 
Chart
(Click here for best resolution)
 
 Notes:
  (3) In the blue line above the BEA's nominal GDP has been deflated using the inflation rate measured by the Billion Prices Project (BPP) index.
  (4) Note that when deflating the line items in the GDP tables from the BEA it is important to treat the "nominal" import and export data as the effective net "real" data -- since there are no offsetting domestic transactions carrying the correspondingly inflated or deflated prices (i.e., the one-sided net impact of inflating imported commodities is "real" to the economy). The net consequences of inflating import prices may become material in times of substantial and sustained trade imbalances.


 


BEA's "Real" GDP -vs- BLS Deflated Per-Capita GDP, Past 4 Years


 BEA "Real" GDP -vs- BLS Deflated Per-Capita GDP, Past 4 Years(5): 
 
Chart
(Click here for best resolution)
 
 Notes:
  (5) Line items in the BEA's nominal GDP are deflated by either the Bureau of Labor Statistic's (BLS) CPI-U index or the BLS PPI index, and reported on a per-capita basis by using Census Bureau projected mid-quarter population data.


 


BEA's "Real" GDP -vs- BLS Deflated Per-Capita Disposable Income, Past 4 Years


 BEA "Real" GDP -vs- BLS Deflated Per-Capita Disposable Income, Past 4 Years(6): 
 
Chart
(Click here for best resolution)
 
 Notes:
  (6) Line items in the BEA's Disposable Personal Income report are deflated by the Bureau of Labor Statistic's (BLS) CPI-U index and reported on a per-capita basis by using Census Bureau projected mid-quarter population data.


 


BEA's "Real" GDP -vs- BLS Deflated Per-Capita Proprietors Income, Past 4 Years


 BEA "Real" GDP -vs- BLS Deflated Per-Capita Proprietor Income, Past 4 Years(7): 
 
Chart
(Click here for best resolution)
 
 Notes:
  (7) The Proprietors' income (with inventory valuation and capital consumption adjustments) line from the BEA's Disposable Personal Income report are deflated by the Bureau of Labor Statistic's (BLS) CPI-U index and reported on a per-capita basis by using Census Bureau projected mid-quarter population data.


 

Commentary


     
  November 27, 2019 - BEA Revises Third Quarter 2019 GDP Growth Upward to 2.13%:

In their second estimate of the US GDP for the third quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.13% annual rate, up 0.20 percentage points (pp) from their previous estimate and up 0.12pp from the prior quarter.

This report contained no material new information about the economy. All of the increased headline growth came from a revision to the previously reported inventory number, which was revised from a slight contraction (-0.05% growth rate) to mild growth (+0.17% growth rate), adding 0.22pp to the headline. None of the other line items impacted the headline number by more than 0.07pp.

Annualized household disposable income was revised $-102 lower than in the previous report, and the household savings rate was reported to be 7.9%, down -0.2pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 1.67%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was effectively the same at 1.66%. Slightly over estimating inflation results in slightly pessimistic growth rates, and if the BEA's nominal data was deflated using CPI-U inflation information the headline growth number would have been marginally higher at 2.18%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 1.17% rate, up 0.03pp from the previous estimate and but still down -0.57pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 0.80%, up 0.01pp from the previous report and down -0.49pp from the prior quarter. The combined consumer contribution to the headline number was 1.97%, up 0.04pp from the previous report but still down a material -1.06pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was revised to -0.18%, up 0.04pp from the previous report and up 0.07pp from the prior quarter.

-- Inventories added 0.17% to the headline number, up 0.22pp from the previous report and, more importantly, up 1.08pp 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 0.28%, down -0.07pp from the previous report and down -0.54pp from the prior quarter.

-- The contribution from exports was revised to 0.11%, up 0.02pp from the previous report and up 0.80pp from the prior quarter.

-- Imports subtracted -0.22% annualized 'growth' from the headline number, down -0.05pp from the previous report and down -0.23pp from the prior quarter. Foreign trade contributed a net -0.11pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 1.96%, down -0.02pp from the previous report and down -0.96pp 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 $-102 lower than in the previous estimate. The annualized household savings rate was 7.9% (down -0.2pp from the previous report). In the 45 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.48%.




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) $21.5 = $14.7 + $3.8 + $3.8 + $-.7
% of GDP 100.00% = 68.10% + 17.42% + 17.51% + -3.03%
Contribution to GDP Growth % 2.13% = 1.97% + -0.01% + 0.28% + -0.11%


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

Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017 Q3-2017 Q2-2017 Q1-2017 Q4-2016
Total GDP Growth 2.13% 2.01% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15% 2.30% 2.04%
Consumer Goods 1.17% 1.74% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14% 0.68% 0.41%
Consumer Services 0.80% 1.29% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49% 0.95% 1.29%
Fixed Investment -0.18% -0.25% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48% 1.27% 0.33%
Inventories 0.17% -0.91% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11% -0.70% 1.18%
Government 0.28% 0.82% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24% -0.04% 0.19%
Exports 0.11% -0.69% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20% 0.72% -0.30%
Imports -0.22% 0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51% -0.58% -1.06%
Real Final Sales 1.96% 2.92% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04% 3.00% 0.86%





Summary and Commentary

Except for the inventory number, most of this report's changes can be characterized as statistical noise. The take-aways from the report can be summarized as follows:

-- The improved headline growth came from growing inventories. That is not a good economic signal in and of itself, and it does not reflect improved domestic consumption.

-- The material drop from the prior quarter's greater than +3% growth in consumer spending for goods and services was confirmed.

Last month we mentioned that "Fear, Uncertainty and Doubt" ("FUD") can be as much of a factor in consumer spending rates as horrendous weather. Let's hope that consumer holiday spending largely ignores the ongoing political storms in Washington.
 
     
     
  October 30, 2019 - BEA Reports that Third Quarter 2019 GDP Grew at a 1.93% Rate:

In their first (preliminary) estimate of the US GDP for the third quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +1.93% annual rate, down -0.08 percentage points (pp) from the prior quarter.

The minor change in the headline masked a material weakening in the growth of consumer spending. The growth rate for aggregate consumer spending on goods and services was reported to be over 1% lower (-1.10pp) than in the prior quarter. The growth of governmental spending (Federal, state and local) also weakened by about half of that amount. But largely offsetting those negative impacts on the headline number were soaring inventories and exports.

Annualized household disposable income was reported to be $253 higher than in the prior quarter, and the household savings rate was reported to be 8.1%, up 0.1pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 1.56%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was slightly higher at 1.66%. 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 1.86%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 1.14% rate, down -0.60pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 0.79%, down -0.50pp from the prior quarter. The combined consumer contribution to the headline number was 1.93%, down -1.10pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be -0.22%, up 0.03pp from the prior quarter.

-- Inventories subtracted -0.05% from the headline number, up 0.86pp 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 0.35%, down -0.47pp from the prior quarter.

-- The contribution from exports was reported to be 0.09%, up 0.78pp from the prior quarter.

-- Imports subtracted -0.17% annualized 'growth' from the headline number, down -0.18pp from the prior quarter. Foreign trade contributed a net -0.08pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be 1.98%, down -0.94pp 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 $253 quarter to quarter. The annualized household savings rate was 8.1% (up 0.1pp from the prior quarter). In the 45 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.50%.




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) $21.5 = $14.7 + $3.7 + $3.8 + $-.7
% of GDP 100.00% = 68.15% + 17.38% + 17.52% + -3.04%
Contribution to GDP Growth % 1.93% = 1.93% + -0.27% + 0.35% + -0.08%


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

Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017 Q3-2017 Q2-2017 Q1-2017 Q4-2016
Total GDP Growth 1.93% 2.01% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15% 2.30% 2.04%
Consumer Goods 1.14% 1.74% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14% 0.68% 0.41%
Consumer Services 0.79% 1.29% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49% 0.95% 1.29%
Fixed Investment -0.22% -0.25% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48% 1.27% 0.33%
Inventories -0.05% -0.91% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11% -0.70% 1.18%
Government 0.35% 0.82% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24% -0.04% 0.19%
Exports 0.09% -0.69% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20% 0.72% -0.30%
Imports -0.17% 0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51% -0.58% -1.06%
Real Final Sales 1.98% 2.92% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04% 3.00% 0.86%





Summary and Commentary

Although the headline number did not change significantly from quarter to quarter, there are items of concern in this new report:

-- The headline number was rescued by exports and inventory growth -- two of the BEA's most volatile line items -- which do not reflect domestic consumption.

-- The previously greater than +3% growth in consumer spending for goods and services weakened materially.

-- The softening consumer spending is going into increased household savings -- ahead of the Q4 holiday spending cycle.

-- Inventory changes went from a strong draw-down to a nearly neutral reading, indicating that although retailers are no longer clearing stock, they remain cautious about the highly anticipated holiday spending.

-- And the BEA's own "bottom line" measurement of economic growth ("Real Final Sales") weakened by nearly a full percent (-0.94pp).

We have always thought that "Fear, Uncertainty and Doubt" ("FUD") can be as much of a factor in consumer spending rates as horrendous weather. And if the cause of the FUD is entrenched politicians, the FUD can certainly last much longer than a cold snap or the entire hurricane season. It will be interesting to see how the economy weathers the ongoing storms in Washington.
 
     
     
  September 26, 2019 - BEA Revises Second Quarter 2019 GDP Growth Downward to 2.01%:

In their third and final estimate of the US GDP for the second quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.01% annual rate, down -0.03 percentage points (pp) from their previous estimate and down -1.08pp from the prior quarter.

All of the revisions in this report can be characterized as "statistical noise." None of the line item revisions are material to our understanding of the state of the US economy.

Annualized household disposable income was revised $9 lower than in the previous report, and the household savings rate was reported to be 8.0%, unchanged from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 2.60%. 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 2.82%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 1.74% rate, down -0.04pp from the previous estimate and up 1.42pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.29%, down -0.03pp from the previous report and up 0.83pp from the prior quarter. The combined consumer contribution to the headline number was 3.03%, down -0.07pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.25%, down -0.05pp from the previous report and down -0.81pp from the prior quarter.

-- Inventories subtracted -0.91% from the headline number, unchanged from the previous report and down -1.44pp 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 0.82%, up 0.05pp from the previous report and up 0.32pp from the prior quarter.

-- The contribution from exports was revised to -0.69%, up 0.02pp from the previous report and down -1.18pp from the prior quarter.

-- Imports added 0.01% annualized 'growth' to the headline number, up 0.02pp from the previous report and down -0.22pp from the prior quarter. Foreign trade contributed a net -0.68pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 2.92%, down -0.03pp from the previous report and up 0.36pp 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 $9 lower than in the previous estimate. The annualized household savings rate was 8.0% (unchanged from the previous report). In the 44 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.48%.




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) $21.3 = $14.5 + $3.7 + $3.7 + $-.7
% of GDP 100.00% = 68.00% + 17.57% + 17.54% + -3.11%
Contribution to GDP Growth % 2.01% = 3.03% + -1.16% + 0.82% + -0.68%


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

Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017 Q3-2017 Q2-2017 Q1-2017 Q4-2016 Q3-2016
Total GDP Growth 2.01% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15% 2.30% 2.04% 2.19%
Consumer Goods 1.74% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14% 0.68% 0.41% 0.84%
Consumer Services 1.29% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49% 0.95% 1.29% 0.90%
Fixed Investment -0.25% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48% 1.27% 0.33% 0.62%
Inventories -0.91% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11% -0.70% 1.18% -0.53%
Government 0.82% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24% -0.04% 0.19% 0.31%
Exports -0.69% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20% 0.72% -0.30% 0.71%
Imports 0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51% -0.58% -1.06% -0.66%
Real Final Sales 2.92% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04% 3.00% 0.86% 2.72%





Summary and Commentary

As mentioned above, there is nothing material in this latest report. The more interesting data will be contained in the BEA's next report on October 30th, which will go a long ways towards telling us if the US economy is tracking in the same direction as Europe -- i.e., tilting into mild contraction.
 
     
     
  August 29, 2019 - BEA Leaves Second Quarter 2019 GDP Growth Essentially Unchanged at 2.04%:

In their second estimate of the US GDP for the second quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.04% annual rate, down -0.01 percentage points (pp) from their previous estimate and down -1.05pp from the prior quarter.

Although the headline number was essentially unchanged, the report did shift material portions of the aggregate growth into the consumer sector from commercial and governmental activities. Specifically, in the consumer sector spending on goods was revised upward by +0.11pp, while spending on services was revised upward by +0.15pp. Offsetting those improvements, the growth rates for spending on fixed commercial investments, inventories, government and exports dropped a combined -0.27pp.

Annualized household disposable income was revised $9 higher than in the previous report, and the household savings rate was reported to be 8.0%, down -0.1pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 2.54%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was significantly 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 noticeably higher at 2.80%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 1.78% rate, up 0.11pp from the previous estimate and up 1.46pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.32%, up 0.15pp from the previous report and up 0.86pp from the prior quarter. The combined consumer contribution to the headline number was 3.10%, up 0.26pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised downward to -0.20%, down -0.06pp from the previous report and down -0.76pp from the prior quarter.

-- Inventories subtracted -0.91% from the headline number, down -0.05pp from the previous report and down -1.44pp 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 0.77%, down -0.08pp from the previous report but still up 0.27pp from the prior quarter.

-- The contribution from exports was revised to -0.71%, down -0.08pp from the previous report and down -1.20pp from the prior quarter.

-- Imports were left unchanged -- subtracting -0.01% annualized 'growth' from the headline number and down -0.24pp from the prior quarter. Foreign trade contributed a net -0.72pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 2.95%, up 0.04pp from the previous report and up 0.39pp 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 $9 higher than in the previous estimate. The annualized household savings rate was 8.0% (down -0.1pp from the previous report). In the 44 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.49%.




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) $21.3 = $14.5 + $3.8 + $3.7 + $-.7
% of GDP 100.00% = 68.00% + 17.58% + 17.53% + -3.11%
Contribution to GDP Growth % 2.04% = 3.10% + -1.11% + 0.77% + -0.72%


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

Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017 Q3-2017 Q2-2017 Q1-2017 Q4-2016 Q3-2016
Total GDP Growth 2.04% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15% 2.30% 2.04% 2.19%
Consumer Goods 1.78% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14% 0.68% 0.41% 0.84%
Consumer Services 1.32% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49% 0.95% 1.29% 0.90%
Fixed Investment -0.20% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48% 1.27% 0.33% 0.62%
Inventories -0.91% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11% -0.70% 1.18% -0.53%
Government 0.77% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24% -0.04% 0.19% 0.31%
Exports -0.71% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20% 0.72% -0.30% 0.71%
Imports -0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51% -0.58% -1.06% -0.66%
Real Final Sales 2.95% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04% 3.00% 0.86% 2.72%





Summary and Commentary

For the most part, the nearly unchanged headline number reflects the "statistical noise" character of this report. Once again, the deflator being used minimizes the headline number -- simultaneously deflating conspiracy theories about politically motivated tweaking of the underlying assumptions.

While this is not exactly "happy days are here again," it is also clearly not doom and gloom. Nor is the US economy -- by itself -- strong enough to pull the global economy out of a global economic funk.

This may be what an inflection point feels like.
 
     
     
  July 26, 2019 - BEA Reports that 2nd Quarter 2019 GDP Growth Grew at 2.05%:

In their first (preliminary) estimate of the US GDP for the second quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.05% annual rate, down -1.04 percentage points (pp) from the downward revised prior quarter.

In this report the BEA also revised all of the numbers for 22 quarters dating back through 2014. Although each of the prior 4 quarters was revised downward (including a material -1.07pp downward revision to the 4th quarter of 2018), the average quarterly revision was a modest +0.02pp upward.

The line item numbers in this report also reversed a number of trends observed in prior quarters. Consumer spending came roaring back, contributing an aggregate 2.84pp to the headline number, the most since the 4th quarter of 2017. Meanwhile, fixed commercial investments and inventories reversed course, subtracting -1.00pp from the headline. The growth in government spending more than doubled to +0.85%, while foreign trade (both exports and imports) weakened substantially, lowering the headline number by -0.64pp.

Household disposable income was reported to be $213 higher than in the upwardly revised prior quarter, and the household savings rate was reported to have dropped -0.4pp to 8.1% from an upwardly revised prior quarter. Both of these factors were likely key to the improved consumer spending.

For this estimate the BEA assumed an effective annualized deflator of 2.51%. During the same quarter (April 2019 through June 2019) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was materially 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 substantially higher at a +2.77% annualized growth rate.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a +1.67% rate, up +1.52pp from the revised prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be +1.17%, up +0.69pp from the prior quarter. The combined consumer contribution to the headline number was reported to be up +2.21pp from the revised prior quarter. This sharply reverses a multi-quarter trend of weakening growth in consumer spending.

-- The headline contribution for commercial/private fixed investments was reported to be -0.14%, down +0.67pp from the revised prior quarter. This is the first contraction in fixed investment spending since the 4th quarter of 2015.

-- Inventories subtracted -0.86% from the headline number, down a substantial -1.41pp from the revised 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 +0.85%, up +0.37pp from the revised prior quarter. All of this growth was in Federal non-defense spending.

-- The contribution from exports was reported to be -0.63%, down a substantial -1.28pp from the revised prior quarter.

-- And second quarter imports subtracted -0.01% annualized "growth" from the headline number, down -0.31pp from the revised prior quarter.

-- The annualized growth in the "real final sales of domestic product" was reported to be +2.91%, up +0.32pp from the prior quarter. This is the BEA's "bottom line" measurement of the economy (and it excludes the inventory data).

-- Real per-capita annualized disposable income was reported to have grown by $213 quarter to quarter. For the past quarter the annualized household savings rate was reported to have dropped to 8.1% (down -0.4pp from the revised prior quarter). The increased disposable income and reduced savings likely drove the improved consumer spending.




The Numbers -- All Quarters 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) $21.3 = $14.5 + $3.8 + $3.7 + $-0.7
% of GDP 100.00% = 67.95% + 17.60% + 17.55% + -3.10%
Contribution to GDP Growth % 2.05% = 2.84% + -1.00% + 0.85% + -0.64%


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

2Q-2019 1Q-2019 4Q-2018 3Q-2018 2Q-2018 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016
Total GDP Growth 2.05% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15% 2.30% 2.04% 2.19% 1.90% 2.04%
Consumer Goods 1.67% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14% 0.68% 0.41% 0.84% 0.94% 0.88%
Consumer Services 1.17% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49% 0.95% 1.29% 0.90% 1.01% 1.23%
Fixed Investment -0.14% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48% 1.27% 0.33% 0.62% 0.44% 0.43%
Inventories -0.86% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11% -0.70% 1.18% -0.53% -0.72% -0.68%
Government 0.85% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24% -0.04% 0.19% 0.31% -0.12% 0.67%
Exports -0.63% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20% 0.72% -0.30% 0.71% 0.45% -0.38%
Imports -0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51% -0.58% -1.06% -0.66% -0.10% -0.11%
Real Final Sales 2.91% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04% 3.00% 0.86% 2.72% 2.62% 2.72%





Summary and Commentary

We are not quite sure what to make of this new report, primarily because it singularly reverses a number of trends that were very noticeable over the course of the past year. With that in mind, and at face value, the key takeaways from this report for the 2nd quarter of 2019 are as follows :

-- The much lamented demise of the consumer sector seems to have been premature. Combined spending on goods and services provided more growth (+2.84%) than the net headline number. The improvement in disposable income and the decrease in savings have likely fueled this spending surge -- reflecting improving household sentiment.

-- Commercial spending on fixed investment, which had materially supported the headline number for the past year, slid into contraction for the first time since 2015.

-- Inventories did their "thing" -- flipping sharply into negative territory. This is mean reversion at its very best. But arguably it is the flip side of the improvement in consumer spending. And it brings to mind that inventory draw downs are the ultimate mixed message -- demonstrating caution on the part of inventory holders while simultaneously offering an encouraging long range future to manufacturers.

-- Government spending soared, with all of the increase in Federal non-defense spending. This is likely related to a time-shifted spending from the extended "shutdown" -- although the "shutdown" itself (as expected) resulted in no material reduction in spending.

-- Foreign trade also flipped, dropping the headline by -0.64pp after adding +0.72pp in the prior quarter, a -1.36pp quarter-to-quarter swing.

-- The BEA's deflator is now substantially higher than the CPI-U reported by the BLS, resulting in an materially more pessimistic growth rate than might otherwise have been reported -- reversing yet another trend.

-- The 22 quarters of historic revisions were, as a whole, relatively benign -- averaging an upward +0.02pp per quarter. However the immediately preceding four quarters took a beating, with the 4th quarter of 2018 dropping by a material -1.07pp.

Over the years we have come to expect that the revision process will reduce the growth reported in the relatively recent past. That raises the obvious question: Is the BEA's data collection process naturally biased to optimism on a quarter by quarter basis? Or is it just good bureaucratic policy to bury some of the negative stuff in the revisions that nobody really looks at?

It is plausible that the BEA's survey based approach introduces a short term survivor bias in their reports -- a phenomenon also observed in employment data. Non-responding survey participants are assumed to still be operating, and their prior responses are simply carried forward. Eventually the dead entities get weeded out, but not before the earlier assumptions about them creates a short term survivor bias.

We certainly hope that the bias is procedural, and not bureaucratic policy. And if it is procedural, we might point out that this is the 21st century -- with even tradition bound Major League Baseball embracing instant replays and experimenting with robots calling balls and strikes. Surely we should expect the BEA to be doing much better.
 
     


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