by Rick Davis, Consumer Metrics Institute July 29, 2016 – BEA Estimates 2nd Quarter 2016 GDP Growth At 1.21%: In their first preliminary estimate of the US GDP for the second quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the growth rate was +1.21%, up 0.38% from a downwardly revised prior quarter.
The positives from the report were almost entirely consumer spending. Consumer spending on goods rebounded nicely from a couple of soft quarters to provide a decent 1.45% of the headline (up 1.20% from an upwardly revised first quarter), while spending on services also strengthened to a healthy 1.38% contribution (up 0.52% from a downwardly revised first quarter). Combined spending on goods and services provided a reported 2.83% of the headline annualized growth rate. The BEA’s treatment of inventories can introduce noise and seriously distort the headline number over short terms — which the BEA admits by also publishing a secondary headline that excludes the impact of inventories. The BEA’s “bottom line” (their “Real Final Sales of Domestic Product”) was a +2.37% growth rate, up 1.13% from 1Q-2016. Real annualized household disposable income was reported to have grown by $181 during the quarter, to an annualized $38,894 (in 2009 dollars). The household savings rate dropped to 5.5% (from a revised 6.1% in the prior quarter). For this revision the BEA assumed an effective annualized deflator of 2.22%. During the same quarter (April 2016 through June 2016) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 3.42%. Under estimating inflation results in correspondingly optimistic growth rates, and if the BEA’s “nominal” data was deflated using CPI-U inflation information the headline growth number would have been significantly lower, at an essentially flat +0.03%. Separately the BEA revised all of their historic data for 2013 to date. Each of the preceding 4 quarters was revised downward in total, with the negative changes ranging from a material -1.30% (2Q-2015) to an insignificant -0.01% (3Q-2015). The average revision over the entire 13 quarter span was 0.0215%, indicating that the revisions were mostly the zero-sum moving of reported economic activity from one quarter to another. Among the notable items in the report :
The Numbers, with Prior Quarters Revised As a quick reminder, the classic definition of the GDP can be summarized with the following equation : or, as it is commonly expressed in algebraic shorthand : 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
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 : Summary and Commentary This report shows a US economy moving forward with a lack-luster 1.21% growth rate. It also contained downward revisions to the prior 4 quarters. Recapping the key items in this report:
Although this report is net (and mildly) positive, the increased consumer spending masked considerable commercial weakness. |