Written by Rick Davis, Consumer Metrics Institute
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.
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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 :
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
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.
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