BEA Revises Second Quarter 2020 GDP Contraction Slightly To -31.71%
In their second estimate of the US GDP for the second quarter of 2020, the Bureau of Economic Analysis (BEA) reported that the US economy was contracting at a -31.71% annual rate, up 1.20 percentage points (pp) from their previous estimate and down -26.74pp from the prior quarter.
As pointed out last month, a more appropriate measurement of this recession uses year-over-year comparisons, rather than the dramatic headlining of annualized quarterly changes. Using year-over-year numbers, the overall inflation adjusted contraction was only -8.64%, consumer spending on goods was down -3.40%, and consumer spending on services was off -13.00%.
Furthermore, the year-over-year comparisons of select line-item wins and losses are both expected and glaring: food and beverages purchased for off-premise consumption was up +10.98%, spending on recreational goods and vehicles was up +9.25%, and non-profit spending was up +30.52%. Meanwhile, year-over-year consumer spending on gasoline and other energy goods was down -44.80%, and spending on recreational services was off -52.69%.
Returning to the annualized quarterly data in this release, annualized household disposable income was revised $190 higher than in the previous report, and the household savings rate was reported to be 26.0%, up 0.3pp from the previous report.
For this estimate the BEA assumed an effective annualized deflator of -2.30%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at -1.14%. 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 -32.14%.
Among the notable items in the report :
-- Consumer spending for goods contributed -2.00% to the contraction rate, up 0.12pp from the previous estimate and down -2.03pp from the prior quarter.
-- The contribution to the headline from consumer spending on services was reported to be -22.77%, up 0.16pp from the previous report and down -17.99pp from the prior quarter. The combined consumer contribution to the headline number was -24.77%, up 0.28pp from the previous report.
-- The headline contribution for commercial/private fixed investments was revised to -5.20%, up 0.18pp from the previous report and down -4.97pp from the prior quarter.
-- Inventories subtracted -3.46% from the headline number, up 0.52pp from the previous report and down -2.12pp 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 0.82%, unchanged from the previous report and up 0.60pp from the prior quarter.
-- The contribution from exports was revised to -9.22%, up 0.16pp from the previous report and down -8.10pp from the prior quarter.
-- Imports added 10.12% annualized 'growth' to the headline number, up 0.06pp from the previous report and up 7.87pp from the prior quarter. Foreign trade contributed a net 0.90pp to the headline number.
-- The annualized growth in the 'real final sales of domestic product' was revised to -28.25%, up 0.68pp from the previous report and down -24.62pp 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 revised $190 higher than in the previous estimate. The annualized household savings rate was 26.0% (up 0.3pp from the previous report). In the 48 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 2.21%.
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
| Total GDP | = | C | + | I | + | G | + | (X-M) | |
|---|---|---|---|---|---|---|---|---|---|
| Annual $ (trillions) | $19.5 | = | $13.0 | + | $3.1 | + | $3.8 | + | $-.5 |
| % of GDP | 100.00% | = | 66.95% | + | 16.08% | + | 19.72% | + | -2.75% |
| Contribution to GDP Growth % | -31.71% | = | -24.77% | + | -8.66% | + | 0.82% | + | 0.90% |
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
| Q2-2020 | Q1-2020 | Q4-2019 | Q3-2019 | Q2-2019 | Q1-2019 | Q4-2018 | Q3-2018 | Q2-2018 | Q1-2018 | Q4-2017 | Q3-2017 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total GDP Growth | -31.71% | -4.97% | 2.37% | 2.57% | 1.50% | 2.94% | 1.31% | 2.12% | 2.70% | 3.78% | 3.88% | 2.95% |
| Consumer Goods | -2.00% | 0.03% | 0.12% | 0.87% | 1.57% | 0.52% | 0.53% | 0.60% | 0.88% | 0.45% | 1.61% | 0.86% |
| Consumer Services | -22.77% | -4.78% | 0.96% | 0.96% | 0.90% | 0.73% | 0.52% | 1.19% | 1.25% | 0.95% | 1.20% | 0.71% |
| Fixed Investment | -5.20% | -0.23% | 0.17% | 0.42% | -0.07% | 0.50% | 0.46% | 0.14% | 0.76% | 1.42% | 1.57% | 0.21% |
| Inventories | -3.46% | -1.34% | -0.82% | -0.09% | -0.97% | 0.21% | 0.23% | 1.58% | -0.94% | 0.41% | -0.50% | 1.05% |
| Government | 0.82% | 0.22% | 0.42% | 0.37% | 0.86% | 0.43% | -0.16% | 0.44% | 0.50% | 0.26% | 0.49% | 0.04% |
| Exports | -9.22% | -1.12% | 0.39% | 0.10% | -0.54% | 0.22% | 0.34% | -0.66% | 0.24% | 0.34% | 1.36% | 0.33% |
| Imports | 10.12% | 2.25% | 1.13% | -0.06% | -0.25% | 0.33% | -0.61% | -1.17% | 0.01% | -0.05% | -1.85% | -0.25% |
| Real Final Sales | -28.25% | -3.63% | 3.19% | 2.66% | 2.47% | 2.73% | 1.08% | 0.54% | 3.64% | 3.37% | 4.38% | 1.90% |
Summary and Commentary
There is no point in ranting about the lack of useful information in this report. They told us last month that the second quarter really stunk -- and now they are merely fine-tuning the historic level of stink.
Do we really need that? Wouldn't it be better if this entrenched monthly reporting exercise was telling us how July had fared relative to June? Shouldn't we know if the "staged re-opening" of the US economy is resulting in materially improved commerce?
Among the many failed governmental responses to the current pandemic, the the BEA's inability to meaningfully inform policy responses may well be the least of our concerns. And sadly we are unaware even a whiff of governmental reporting reform in any campaign platform. Unfortunately, that may require more vision than can be found in an election year -- or any year, for that matter.
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