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mining tracking data for an understanding of what American consumers were doing yesterday."

     
  June 25, 2020 - BEA Revises First Quarter 2020 GDP Contraction Slightly Upward to -4.99%:

In their third and final estimate of the US GDP for the first quarter of 2020, the Bureau of Economic Analysis (BEA) reported that the US economy was contracting at a -4.99% annual rate, up 0.07 percentage points (pp) from their previous estimate and down -7.11pp from the prior quarter.

Unfortunately, this report merely fine tunes statistical noise from previous reports -- reports that have been rendered completely meaningless by events still in progress. By analogy, this is a season ending game between two miserable teams that have long since been eliminated from the playoffs.

In an earlier release, annualized household disposable income was revised $3 lower than in the previous report, and the household savings rate was reported to be 9.6%, unchanged from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 1.63%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was materially lower at -0.76%. Over estimating inflation results in pessimistic growth rates, and if the BEA's nominal data was deflated using CPI-U inflation information the headline growth number would have been -2.69%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 0.05% rate, down -0.01pp from the previous estimate and down -0.07pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be -4.78%, down -0.03pp from the previous report and down -5.90pp from the prior quarter. The combined consumer contribution to the headline number was -4.73%, down -0.04pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.21%, up 0.20pp from the previous report and down -0.12pp from the prior quarter.

-- Inventories subtracted -1.56% from the headline number, down -0.13pp from the previous report and down -0.58pp 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 0.20%, up 0.05pp from the previous report and down -0.24pp from the prior quarter.

-- The contribution from exports was revised to -1.06%, down -0.04pp from the previous report and down -1.30pp from the prior quarter.

-- Imports added 2.37% annualized 'growth' to the headline number, up 0.03pp from the previous report and up 1.10pp from the prior quarter. Foreign trade contributed a net 1.31pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to -3.43%, up 0.20pp from the previous report and down -6.53pp 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 $3 lower than in the previous estimate. The annualized household savings rate was 9.6% (unchanged from the previous report). In the 47 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.47%.



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) $21.5 = $14.6 + $3.6 + $3.9 + $-.5
% of GDP 100.00% = 67.70% + 16.85% + 17.88% + -2.44%
Contribution to GDP Growth % -4.99% = -4.73% + -1.77% + 0.20% + 1.31%


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

Q1-2020 Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017 Q3-2017 Q2-2017
Total GDP Growth -4.99% 2.12% 2.09% 2.01% 3.09% 1.09% 2.92% 3.50% 2.55% 3.55% 3.20% 2.15%
Consumer Goods 0.05% 0.12% 1.09% 1.74% 0.32% 0.33% 0.75% 1.13% 0.27% 1.55% 0.85% 1.14%
Consumer Services -4.78% 1.12% 1.02% 1.29% 0.46% 0.65% 1.59% 1.57% 0.88% 1.57% 0.76% 0.49%
Fixed Investment -0.21% -0.09% -0.14% -0.25% 0.56% 0.46% 0.13% 0.89% 0.94% 1.45% 0.25% 0.48%
Inventories -1.56% -0.98% -0.03% -0.91% 0.53% 0.07% 2.14% -1.20% 0.13% -0.64% 1.00% 0.11%
Government 0.20% 0.44% 0.30% 0.82% 0.50% -0.07% 0.36% 0.44% 0.33% 0.42% -0.02% 0.24%
Exports -1.06% 0.24% 0.11% -0.69% 0.49% 0.18% -0.78% 0.71% 0.10% 1.19% 0.54% 0.20%
Imports 2.37% 1.27% -0.26% 0.01% 0.23% -0.53% -1.27% -0.04% -0.10% -1.99% -0.18% -0.51%
Real Final Sales -3.43% 3.10% 2.12% 2.92% 2.56% 1.02% 0.78% 4.70% 2.42% 4.19% 2.20% 2.04%




Summary and Commentary

There really aren't any key points in this report. It is merely filling the time gap before the July 30th initial report on the second quarter. However its inherent lameness does point out several things:

-- Treating 1Q-2020 as a single (and implicitly unified) time span is ridiculous. The March economy bore no resemblance to the January economy, and lumping them together creates a bland fruit cocktail that does service to neither apples or oranges.

-- This is a further indictment of the now over 80 year old methodologies of the BEA. If that organization cannot provide more timely and more focused data for decision makers, perhaps it is time for major change.

-- And the annualized quarterly reporting regimen is about to present yet another absurdity: according to the Atlanta Fed's GDPNow forecast, on July 30th main stream media will be reporting that the US economy is contracting at a -45.5% rate. No, the size of the economy is not going to halve over the next 12 months. But annualized quarterly numbers can produce exactly those kinds of headlines.

We have all grown accustomed to projections of the future curves for "new cases" and "hospitalizations." Those are not simple minded annualized projections of last quarter's 90 day old data. And they can actually be used by decision makers to understand how the future is likely to play out under certain policy and response scenarios. If the CDC can help us understand and plan while an event is still in progress, why can't the BEA?
 
     

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