In a mostly meaningless third and final estimate of the US GDP for the fourth quarter of 2019, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.12% annual rate, up 0.03 percentage points (pp) from their previous estimate and up 0.03pp from the prior quarter.

Although this report is purely statistical noise and does not contain any material new information, we nevertheless provide a full analysis of it below. However, unless you are obsessed with statistical noise, we recommend that you skip down to our summary and commentary below the mostly unchanged tables.

Among the items in the report :

-- Consumer spending for goods was reported to be growing at a 0.12% rate, down -0.02pp from the previous estimate and down -0.97pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.12%, up 0.09pp from the previous report and up 0.10pp from the prior quarter. The combined consumer contribution to the headline number was 1.24%, up 0.07pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.09%, unchanged from the previous report and up 0.05pp from the prior quarter.

-- Inventories subtracted -0.98% from the headline number, unchanged from the previous report and down -0.95pp 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 0.44%, down -0.02pp from the previous report and up 0.14pp from the prior quarter.

-- The contribution from exports was revised to 0.24%, unchanged from the previous report and up 0.13pp from the prior quarter.

-- Imports added 1.27% annualized 'growth' to the headline number, down -0.02pp from the previous report and up 1.53pp from the prior quarter. Foreign trade contributed a net 1.51pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 3.10%, up 0.03pp from the previous report and up 0.98pp from the prior quarter. This is the BEA's 'bottom line' measurement of the economy (and it excludes the inventory data).

-- Real per-capita annualized disposable income was revised -$2 lower than in the previous estimate. The annualized household savings rate was 7.6% (down -0.1pp from the previous report). In the 46 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.48%.

-- For this estimate the BEA assumed an effective annualized deflator of 1.36%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 2.92%. 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 0.59%.

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

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

Summary and Commentary

March 2020 has made this report completely irrelevant. The BEA has metaphorically fine-tuned the deck chairs on the Titanic. In a matter of weeks, we have transitioned from the above numbers to the reality of unprecedented economic contraction and soaring unemployment rates last seen 90 years ago.

In fairness, the BEA did what it was charged with doing. But even during times of economic stability, the BEA's quarterly ritual of issuing a preliminary growth estimate followed a month later by a first revision, followed yet a month later by a final estimate, is obscenely antiquated.

As a further indictment of the BEA's methodologies, current "real-time" estimates -- using those exact same methodologies -- provide us with annualized growth estimates for the First Quarter of 2020 of 3.1% (GDPNow, Atlanta Fed) and 1.5% (NowCast, New York Fed). If you are a betting person, we would suggest that you take the "under."

Just as the US response to the current pandemic suggests that the FDA, CDC and NIH should be bulldozed and rebuilt from scratch, the time has come for a similar approach to the BEA, which has never been particularly good at reading an economy in transition:

BEA's Official and Changing View of First Quarter 2008 GDP

That 2008 downturn pales in comparison to the ferocity of an economy being shut down over the course of a couple weeks. The fact that the BEA may finally get the numbers right during the July 2025 revision is of little comfort to policy makers needing guidance now.

Unlike 90 years ago, this economy won't require a decade and a global war for full recovery. But the contraction will certainly spike lower than anything this generation has ever seen.