posted on 29 September 2016
The third estimate of second quarter 2016 Real Gross Domestic Product (GDP) was revised upward to 1.4 %. This improvement was mainly due to upward revision to the inventory adjustment (see table below).
The market expected:
Headline GDP is calculated by annualizing one quarter's data against the previous quarters data (and the previous quarter was relatively strong in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 2Q2016, the year-over-year growth is 1.3 % (up from the 1.2% in second estimate) - moderately down from the 1Q2016's 1.6 % year-over-year growth. So one might say that the rate of GDP growth decelerated 0.3% from the previous quarter.
Real GDP Expressed As Year-over-Year Change
This third estimate released today is based on more complete source data than were available for the "second" estimate issued last month. (See caveats below.)
Real GDP is inflation adjusted and annualized - the economy was statistically unchanged on a per capita basis.
Real GDP per Capita
The table below compares the previous quarter estimate of GDP (Table 1.1.2) with the this quarter which shows:
The table below highlights the significant differences the previous quarter and current quarter's estimate (green = improvement, red = decline).
What the BEA says about the third estimate of GDP:
Inflation continues to moderate as the "deflator" which adjusts the current value GDP to a "real" comparable value continues to moderate. The following compares the GDP implicit price deflator year-over-year growth to the Consumer Price Index [this puts both on the same basis for comparision]:
What the BLS says about the revision from the second to the third estimate:
In the same release, corporate profits data was released showing less growth.
Here is a look at Quarterly GDP since Q2 1947. Prior to 1947, GDP was calculated annually. To be more precise, the chart shows is the annualized percent change from the preceding quarter in Real (inflation-adjusted) Gross Domestic Product. We've also included recessions, which are determined by the National Bureau of Economic Research (NBER). Also illustrated are the 3.22% average (arithmetic mean) and the 10-year moving average, currently at 1.31 percent.
Here is a log-scale chart of real GDP with an exponential regression, which helps us understand growth cycles since the 1947 inception of quarterly GDP. The latest number puts us 15.1% below trend, the largest negative spread in the history of this series, a bit wider than the -15.0% in the Advance Estimate.
A particularly telling representation of slowing growth in the US economy is the year-over-year rate of change. The average rate at the start of recessions is 3.35%. All eleven recessions over this timeframe have begun at a higher level of real YoY GDP.
In summary, the Q2 GDP Second Estimate of 1.4 percent was the generally expected.
The chart below is a way to visualize real GDP change since 2007. The chart uses a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. As the analysis clear shows, personal consumption is key factor in GDP mathematics.
Caveats on the Use of Gross Domestic Product (GDP)
GDP is market value of all final goods and services produced within the USA where money is used in the transaction - and it is expressed as an annualized number. GDP = private consumption + gross investment + government spending + (exports − imports), or GDP = C + I + G + (X - M). GDP counts monetary expenditures. It is designed to count value added so that goods are not counted over and over as they move through the manufacture - wholesale - retail chain.
The vernacular relating to the different GDP releases:
Consider that GDP includes the costs of suing your neighbor or McDonald's for hot coffee spilled in your crotch, plastic surgery or cancer treatment, buying a new aircraft carrier for the military, or even the replacement of your house if it burns down - yet little of these activities is real economic growth.
GDP does not include include home costs (other than the new home purchase price even though mortgaged up the kazoo), interest rates, bank charges, or the money spent buying anything used.
It does not measure wealth, disposable income, or employment.
In short, GDP does not measure the change of the economic environment for Joe Sixpack, and Joe Sixpack's kid, yet pundits continuously compare GDP across time periods.
Although there always will be some correlation between all economic pulse points, GDP does not measure the economic elements that directly impact the quality of life of its citizens.
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