BEA Reports That First Quarter 2020 GDP Contracted At A -4.79% Rate

In their first (preliminary) 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 -4.79% annual rate, down -6.91 percentage points (pp) from the prior quarter.

This report begins to reflect the impact of the Covid-19 pandemic. The details are nearly all negative, with (as expected) consumer spending on services taking the biggest hit. And particularly telling is the reported increase in the household savings rate, which increased a full 2pp to 9.6%, the highest level since the fourth quarter of 2012. Even consumer monies were staying at home.

Annualized household disposable income was reported to be $11 higher than in the prior quarter, and the household savings rate was reported to be 9.6%, up 2.0pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 1.38%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 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 -2.72%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a -0.27% rate, down -0.39pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be -4.99%, down -6.11pp from the prior quarter. The combined consumer contribution to the headline number was -5.26%, down -6.50pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be -0.43%, down -0.34pp from the prior quarter.

-- Inventories subtracted -0.53% from the headline number, up 0.45pp 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 0.13%, down -0.31pp from the prior quarter.

-- The contribution from exports was reported to be -1.02%, down -1.26pp from the prior quarter.

-- Imports added 2.32% annualized 'growth' to the headline number, up 1.05pp from the prior quarter. Foreign trade contributed a net 1.30pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be -4.26%, down -7.36pp 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 increased by $11 quarter to quarter. The annualized household savings rate was 9.6% (up 2.0pp from the prior quarter). In the 47 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.45%.

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