Note: The charts in this commentary have been updated to include the Q2 2022 Advance Estimate.

Image Source: Pexels

The chart below is a way to visualize real GDP change since 2007 and uses a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics:

"Real gross domestic product (GDP) decreased at an annual rate of 0.9 percent in the second quarter of 2022 (table 1), according to the 'advance' estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 1.6 percent."

Let's take a closer look at the contributions of GDP of the four major subcomponents. The data source for this chart is the Excel file accompanying the BEA's latest GDP news release. Specifically, it uses Table 2: Contributions to Percent Change in Real Gross Domestic Product.

Note: The conventional practice is to round GDP to one decimal place, the latest at -0.9%.

Here is a chart of the latest estimates. Over the time frame of this chart, the Personal Consumption Expenditures (PCE) component has shown the most consistent correlation with real GDP itself.

When PCE has been positive, GDP has usually been positive, and vice versa. In the latest GDP data, the contribution of PCE came in at 0.70  of the -0.9 real GDP, down from the previous quarter.

Gross Private Domestic Investment was a negative contributor. Net Exports were positive in Q2. Government Consumption Expenditures came in as a negative contributor.

As for the role of Personal Consumption Expenditures (PCE) in GDP and how it has increased over time, here is a snapshot of the PCE-to-GDP ratio since the inception of quarterly GDP in 1947. To one decimal place, the latest ratio of 70.7% is at its record high.

Let's close with a look at the inverse behavior of three of the GPDI components during recessions. PCE and especially GC generally increase as a percent of GDP whereas GPDI declines. Note the three with different vertical axes (Personal Consumption Expenditures on the left, Gross Private Domestic Investment, and Government Consumption on the right) to highlight the frequent inverse correlations.

Other GDP updates:

• Latest GDP Update
• Real GDP Per Capita

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