BEA Reports That 2nd Quarter 2019 GDP Growth Grew At 2.05%

In their first (preliminary) estimate of the US GDP for the second quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.05% annual rate, down -1.04 percentage points (pp) from the downward revised prior quarter. 

In this report the BEA also revised all of the numbers for 22 quarters dating back through 2014. Although each of the prior 4 quarters was revised downward (including a material -1.07pp downward revision to the 4th quarter of 2018), the average quarterly revision was a modest +0.02pp upward. 

The line item numbers in this report also reversed a number of trends observed in prior quarters. Consumer spending came roaring back, contributing an aggregate 2.84pp to the headline number, the most since the 4th quarter of 2017. Meanwhile, fixed commercial investments and inventories reversed course, subtracting -1.00pp from the headline. The growth in government spending more than doubled to +0.85%, while foreign trade (both exports and imports) weakened substantially, lowering the headline number by -0.64pp. 

Household disposable income was reported to be $213 higher than in the upwardly revised prior quarter, and the household savings rate was reported to have dropped -0.4pp to 8.1% from an upwardly revised prior quarter. 

For this estimate the BEA assumed an effective annualized deflator of 2.51%. During the same quarter (April 2019 through June 2019) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was materially lower at 1.83%. 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 higher at a +2.77% annualized growth rate. 

Among the notable items in the report 

  • Consumer spending for goods was reported to be growing at a +1.67% rate, up +1.52pp from the revised prior quarter.
  • The contribution to the headline from consumer spending on services was reported to be +1.17%, up +0.69pp from the prior quarter. The combined consumer contribution to the headline number was reported to be up +2.21pp from the revised prior quarter. This sharply reverses a multi-quarter trend of weakening growth in consumer spending.
  • The headline contribution for commercial/private fixed investments was reported to be -0.14%, down +0.67pp from the revised prior quarter.
  • Inventories subtracted -0.86% from the headline number, down a substantial -1.41pp from the revised 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 +0.85%, up +0.37pp from the revised prior quarter.
  • The contribution from exports was reported to be -0.63%, down a substantial -1.28pp from the revised prior quarter.
  • And second quarter imports subtracted -0.01% annualized "growth" from the headline number, down -0.31pp from the revised prior quarter.
  • The annualized growth in the "real final sales of domestic product" was reported to be +2.91%, up +0.32pp 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 reported to have grown by $213 quarter to quarter. For the past quarter the annualized household savings rate was reported to have dropped to 8.1% (down -0.4pp from the revised prior quarter). 
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