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| 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 most notable item in the report was the continued contraction of US commercial fixed investments, which subtracted -0.52% from the quarter's headline growth rate (down -0.37% from a downwardly revised first quarter). This was the third consecutive quarterly decline for fixed investments. Inventories also contracted (subtracting -1.16% from the headline), in this case for the fifth consecutive 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 headline contribution from consumer expenditures for goods improved significantly to a +1.45% growth (representing a 1.20% improvement from the prior quarter).
-- The contribution to the headline from consumer services also improved to +1.38% (up +0.52% from the prior quarter). The combined consumer contribution to the headline number was +2.83%, up +1.72% from 1Q-2016 -- breaking a prior three quarter trend of materially weaker growth in consumer spending.
-- The headline contribution from commercial private fixed investments remained negative at -0.52%, down -0.37% from a downward revised prior quarter.
-- The contribution from inventories remained negative, subtracting -1.16% from the headline number and down -0.75 from 1Q-2016. It bears repeating that the BEA's inventory numbers are exceptionally noisy, subject to significant distortions/anomalies caused by commodity price swings while representing a zero reverting (and long term zero sum) series.
-- Governmental spending softened, subtracting -0.16% from the headline. This contraction was entirely due to decreased capital spending at state and local levels, with Federal spending essentially flat.
-- The contribution to the headline number from exports was positive at +0.16% (an improvement of +0.25% from a downward revision of the prior quarter).
-- Imports added +0.06% to the headline number, down -0.03% from the prior quarter.
-- The "real final sales of domestic product" improved to +2.37%, up +1.13% from a downwardly revised prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the reported inventory contraction.
-- As mentioned above, real per-capita annual disposable income improved by $181 during the quarter, and household savings rates declined -- which largely accounts for the improved consumer spending. It is important to keep this line item in perspective. Real per-capita annual disposable income is up only +6.04% in aggregate since the second quarter of 2008 -- a meager annualized +0.74% growth rate over the past 32 quarters.
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
Quarterly Changes in % Contributions to GDP
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:
-- Private commercial investment contracted for the third consecutive quarter.
-- Improved consumer spending growth was the only redeeming part of the report.
-- Most of the increased consumer spending came from decreased household savings.
Although this report is net (and mildly) positive, the increased consumer spending masked considerable commercial weakness.