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  April 27, 2023 - BEA Reports that First Quarter 2023 GDP Grew at a 1.07% Rate:

In their first (preliminary) estimate of the US GDP for the first quarter of 2023, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +1.07% annual rate, down 1.50 percentage points (pp) from the prior quarter.

The headline growth rate of +1.07% is materially lower than the BEA's preferred 'bottom line' growth number (the 'real final sales of domestic product'), which excludes inventory adjustments and was reported to be +3.33%. In fact, the growth in consumer spending on both goods and services increased quarter-over-quarter, and the combined consumer contribution to the headline number was a respectable 2.48%, up 1.77pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 4.00%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was lower at 3.82%. 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 1.29%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 1.45% rate, up 1.46pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.03%, up 0.31pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be essentially neutral at -0.07%, up 0.61pp from the prior quarter. This ended three quarters of more significant contraction.

-- Inventories subtracted 2.26% from the headline number, down 3.73pp 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 reported to be 0.81%, up 0.16pp from the prior quarter.

-- The contribution from exports was reported to be 0.54%, up 0.98pp from the prior quarter.

-- Imports subtracted 0.43% annualized 'growth' from the headline number, down 1.29pp from the prior quarter. Foreign trade contributed a net 0.11pp to the headline number.

-- As mentioned above, the annualized growth in the 'real final sales of domestic product' was reported to be 3.33%, up 2.23pp from the prior quarter. This is the BEA's 'bottom line' measurement of the economy (and it excludes the inventory data).

-- In an earlier release, real per-capita annualized household disposable income was reported to have increased by $840 quarter to quarter. The annualized household savings rate was 4.8% (up 1.9pp from the prior quarter). In the 59 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.28%.



The Numbers

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) $26.5 = $18.1 + $4.6 + $4.6 + $-.8
% of GDP 100.00% = 68.37% + 17.24% + 17.56% + -3.17%
Contribution to GDP Growth % 1.07% = 2.48% + -2.33% + 0.81% + 0.11%


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

Q1-2023 Q4-2022 Q3-2022 Q2-2022 Q1-2022 Q4-2021 Q3-2021 Q2-2021 Q1-2021 Q4-2020 Q3-2020 Q2-2020
Total GDP Growth 1.07% 2.57% 3.25% -0.58% -1.64% 6.94% 2.66% 7.00% 6.30% 3.90% 35.33% -29.87%
Consumer Goods 1.45% -0.01% -0.08% -0.61% -0.02% 0.55% -1.96% 2.65% 5.26% 0.06% 10.85% -2.07%
Consumer Services 1.03% 0.72% 1.63% 1.99% 0.93% 1.58% 3.94% 5.19% 1.71% 2.47% 15.50% -21.01%
Fixed Investment -0.07% -0.68% -0.62% -0.92% 0.83% 0.12% -0.18% 1.05% 1.70% 2.76% 5.12% -5.30%
Inventories -2.26% 1.47% -1.19% -1.91% 0.15% 5.01% 1.96% -0.75% -2.52% 0.30% 7.57% -4.35%
Government 0.81% 0.65% 0.65% -0.29% -0.40% -0.16% -0.02% -0.54% 1.18% -0.01% -0.97% 1.57%
Exports 0.54% -0.44% 1.65% 1.51% -0.53% 2.37% -0.13% 0.51% 0.03% 2.20% 4.98% -8.66%
Imports -0.43% 0.86% 1.21% -0.35% -2.60% -2.53% -0.95% -1.11% -1.06% -3.88% -7.72% 9.95%
Real Final Sales 3.33% 1.10% 4.44% 1.33% -1.79% 1.93% 0.70% 7.75% 8.82% 3.60% 27.76% -25.52%




Summary and Commentary

The key points of this report can be summarized as follows:

-- This report is not nearly as bad as the headline number might indicate, having suffered materially from inventory draw downs.

-- Consumer spending on both goods and services improved to a respectable growth rate.

-- Three quarters of contraction in spending for commercial/private fixed investment essentially stopped, and governmental spending remained robust.

-- Perhaps most significantly, household disposable income saw enough of an increase that savings rates took a noticeable upturn.

Except for the modest headline number, this was not the "start of a downturn" report that many had expected. In fact, consumer spending on goods showed surprising strength after suffering through four consecutive quarters of contraction. That noted, we will eagerly await the next round of BEA annual adjustments three months hence.
 
     

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