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  June 27, 2019 - BEA Revises 1st Quarter 2019 GDP Growth Slightly Upward to 3.14%:

In their third (and final) estimate of the US GDP for the first quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +3.14% annual rate, up +0.07 percentage points (pp) from the previous report, and up +0.98pp from the prior quarter.

Although the headline revision was relatively modest and some of the details within the report are certainly statistical noise, this revision did make some material shifts in the distribution of the annualized growth. Consumer spending on goods was no longer reported to be contracting, the growth in consumer spending on services was halved, and the growth rate for fixed investments more than doubled.

Household disposable income was revised lower by -$24 per annum, and the household savings rate was reported to have stayed steady at 6.7% (up +0.2pp from the prior quarter).

For this estimate the BEA assumed an effective annualized deflator of 0.63%. During the same quarter (January 2019 through March 2019) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was materially higher at 2.27%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been halved to a +1.51% annualized growth rate.

Among the notable items in the report :

-- The new report revised consumer spending for goods into modest growth during the first quarter of 2019. The headline contribution from consumer goods spending was reported to be +0.15%, down -0.39pp from the prior quarter.

-- In sharp contrast, the contribution to the headline from consumer spending on services was halved from +0.96% to +0.48%, down -0.64pp from the prior quarter. The combined consumer contribution to the headline number was reported to be down -1.03pp from the prior quarter, confirming a third consecutive quarter of weakening growth in consumer spending.

-- The headline contribution for commercial/private fixed investments was reported to be +0.53%, up +0.35pp from the previous report and now essentially flat relative to the prior quarter.

-- Inventories boosted the headline number by +0.55pp, down -0.05pp from the previous report but up +0.44pp 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 upward to +0.48%, up +0.55pp from the prior quarter.

-- The contribution from exports was reported to be +0.65%, now up +0.43pp from the prior quarter.

-- And in this revision, in the first quarter imports added +0.30% annualized "growth" to the headline number (after subtracting -0.30% annualized "growth" during the prior quarter). This amounts to economic "growth" by virtue of fewer dollars spent on imported goods.

-- The annualized growth in the "real final sales of domestic product" was revised upward to +2.59%, now up +0.54pp 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 downward -$24. For the past quarter the annualized household savings rate was reported to have remained steady at 6.7% (up +0.2pp from the prior quarter).

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 :

GDP Components Table

Total GDP = C + I + G + (X-M)
Annual $ (trillions) $21.0 = $14.2 + $3.8 + $3.6 + $-0.6
% of GDP 100.00% = 67.61% + 18.15% + 17.12% + -2.88%
Contribution to GDP Growth % 3.14% = 0.63% + 1.08% + 0.48% + 0.95%

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 :

Quarterly Changes in % Contributions to GDP

1Q-2019 4Q-2018 3Q-2018 2Q-2018 1Q-2018 4Q-2017 3Q-2017 2Q-2017 1Q-2017 4Q-2016 3Q-2016 2Q-2016 1Q-2016
Total GDP Growth 3.14% 2.16% 3.36% 4.16% 2.22% 2.29% 2.82% 3.00% 1.79% 1.77% 1.92% 2.28% 1.54%
Consumer Goods 0.15% 0.54% 0.90% 1.16% -0.13% 1.42% 0.86% 1.17% 0.40% 0.58% 0.70% 1.01% 0.72%
Consumer Services 0.48% 1.12% 1.47% 1.42% 0.49% 1.22% 0.65% 0.79% 0.82% 1.17% 1.09% 1.29% 0.90%
Fixed Investment 0.53% 0.54% 0.21% 1.10% 1.34% 1.04% 0.44% 0.72% 1.60% 0.28% 0.52% 0.46% 0.31%
Inventories 0.55% 0.11% 2.33% -1.17% 0.27% -0.91% 1.04% 0.23% -0.80% 1.03% -0.59% -0.62% -0.62%
Government 0.48% -0.07% 0.44% 0.43% 0.27% 0.41% -0.18% 0.01% -0.13% 0.03% 0.17% -0.15% 0.60%
Exports 0.65% 0.22% -0.62% 1.12% 0.43% 0.79% 0.42% 0.44% 0.59% -0.44% 0.71% 0.39% -0.31%
Imports 0.30% -0.30% -1.37% 0.10% -0.45% -1.68% -0.41% -0.36% -0.69% -0.88% -0.68% -0.10% -0.06%
Real Final Sales 2.59% 2.05% 1.03% 5.33% 1.95% 3.20% 1.78% 2.77% 2.59 0.74% 2.51% 2.90% 2.16%

Summary and Commentary

The key takeaways from this revision for the 1st quarter of 2019 are as follows :

-- Although the headline number was largely unchanged, this report shifted a material portion of that growth from the consumer sector to commercial fixed investment.

-- In the 43 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita annualized disposable income has been a dismal 1.27%.

-- The BEA's headline number was more that doubled by an inflation rate that was materially at odds with the inflation recorded by the Bureau of Labor Statistics (BLS).

-- Happily for policy makers, this revision left the headline number (for the moment) in the "Goldilocks" zone of economic growth. But if the NY Fed's "NowCasting" and/or the Atlanta Fed's "GDPNow" projections for the 2nd quarter of 2019 are reasonably accurate, we can expect the next report to move the headline somewhat south of where Goldilocks resides.

We look forward to the BEA's next report, which will also contain their annual revisions to historical data.

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