Advance Estimate 2Q2013 GDP Is 1.7%* (*new GDP baseline)

Written by Doug Short and

The advance estimate of first quarter 2013 Real Gross Domestic Product (GDP) grew a positive 1.7% – up from a completely revised GDP database (discussed herein).

  • The market expected the advance estimate 2Q2013 GDP at -0.7% to +1.1%. 1Q2013 GDP has been revised down from 1.8% to 1.1%.

This advance estimate released today is based on source data that are incomplete or subject to further revision. (See caveats below.) Please note that historically advance estimates have turned out to be little more than wild guesses.

Real GDP is inflation adjusted and annualized , and per capita GDP did not fully recover from the last recession.

Real GDP per Capita

The table below compares the 1Q2013 third estimate of GDP with the advance estimate 2Q2013 GDP which shows:

  • changes to the trade balance (exports higher but imports were significantly higher)
  • there was a smaller inventory buildup;
  • and consumer spending growth was less good.

[click on graphic below to enlarge]

What the BEA says about 2Q2013 GDP:

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and residential investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the second quarter primarily reflected upturns in nonresidential fixed investment and in exports, a smaller decrease in federal government spending, and an upturn in state and local government spending that were partly offset by an acceleration in imports and decelerations in private inventory investment and in PCE.

Here is selected tidbits about the revision to the entire GDP series:

Today, BEA released revised statistics of gross domestic product (GDP) and of other national income and product accounts (NIPAs) series from 1929 through the first quarter of 2013. Comprehensive revisions, which are carried out about every 5 years, are an important part of BEA’s regular process for improving and modernizing its accounts to keep pace with the ever-changing U.S.economy.

  • For 1929–2012, the average annual growth rate of real GDP was 3.3 percent, 0.1 percentage point higher than in the previously published estimates.  For the more recent period, 2002–2012, the growth rate was 1.8 percent, 0.2 percentage point higher than in the previously published estimates.
  • For 2002–2012, the average rate of change in the prices paid by U.S. residents was 2.3 percent, 0.1 percentage point lower than in the previously published estimates.
  • For 2009–2012, the average annual growth rate of real GDP was 2.4 percent, 0.3 percentage point higher than in the previously published estimates.  The percent change in real GDP was revised up 0.1 percentage point for 2010, was unrevised for 2011, and was revised up 0.6 percentage point for 2012.
  • For the period of contraction from the fourth quarter of 2007 to the second quarter of 2009, real GDP decreased at an average annual rate of 2.9 percent; in the previously published estimates, it decreased 3.2 percent.
  • For the period of expansion from the second quarter of 2009 to the first quarter of 2013, real GDP increased at an average annual rate of 2.2 percent; in the previously published estimates, it increased 2.1 percent.

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 deflator to the Consumer Price Index:

Overview Analysis:

Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I’ve also included recessions, which are determined by the National Bureau of Economic Research (NBER).

Here is a close-up of GDP alone with a line to illustrate the 3.2 average (arithmetic mean) for the quarterly series since the 1947, with the latest GDP revisions, this number had been at 3.3 for 14 quarters, but slipped to 3.2 in Q4 of 2012. I’ve also plotted the 10-year moving average, currently at 1.7. The current GDP is now tied with the moving average.

Here is the same chart with a linear regression that illustrates the gradual decline in GDP over this timeframe.

Perhaps the most telling representation of slowing growth in the US economy is the year-over-year rate of change. The latest data point is lower than the onset of all recessions except the one that started in January 1980, with which, at two decimal places, it’s tied.

Click to View

And for a bit of political trivia in this pre-election period, here is a look at GDP by party in control of the White House and Congress.

In summary, the Q2 GDP Advance Estimate of 1.7 percent was higher than expectations. Equally surprising was the downward revision of the previous quarter from 1.8 to 1.1 percent.

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.

Click to View

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:

“Advance” estimates, based on source data that are incomplete or subject to further revision by the source agency, are released near the end of the first month after the end of the quarter; as more detailed and more comprehensive data become available, “second” and “third” estimates are released near the end of the second and third months, respectively. The “latest” estimates reflect the results of both annual and comprehensive revisions.

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 in 1970, 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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