Analysis
All the analysis of third look at 1stQ2013 GDP you need is contained in the following by Rick Davis of Consumer Metrics.
IV) A Look Inside 3rdQ 2013 GDP
3rd Q2013 GDP was out last week and indicated higher growth of +2.84% but when looked at in detail still has some concerns.
V) GDP
In their first estimate of the US GDP for the third quarter of 2013, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 2.84% annualized rate, up 0.36% from the 2.48% growth rate reported for the prior quarter. The modest net improvement in the headline growth number came in spite of a weakening contributions from consumer spending (down -0.20% in aggregate), fixed investment (down -0.33%) and exports (down -0.44%). Those softening sectors were more than offset by growing contributions from inventories (up 0.42%), government spending (up 0.11% -- all at the state and local levels) and sharply weakening imports (which added 0.80% to the headline).
For this report the BEA assumed annualized net aggregate inflation of 1.91%. This is the first time in several quarters that the deflator used by the BEA was reasonably close to those recorded by its sister agencies within the US Government. During the third quarter (i.e., from June to September) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) rose by 1.73% (annualized), and the price index published by the Billion Prices Project (BPP) rose at an annualized rate of 1.72%. As a reminder: an overstatement of assumed inflation decreases the reported headline number -- and in this case the BEA's "deflator" slightly lowered the published headline rate. If the CPI-U had been used to convert the "nominal" GDP numbers into "real" numbers, the reported headline growth rate would have been a somewhat higher +3.07%, while using the BPP index (which arguably best reflects the experiences of the American consumer) would have generated an even higher +3.09% annualized rate.
Finally, real annualized per capita disposable income was reported to have risen by $161 per year and the personal savings rate increased to 4.7% (from 4.5%). That savings rate had taken a 2.5% hit (a 38% reduction in the savings rate) during the first quarter as households struggled to absorb the 2% increase in FICA tax rates. The savings rate has now recovered about a quarter of those first quarter cutbacks -- funded almost exclusively through weaker growth in household expenditures.
Among the notable items in the report:
-- The contribution of consumer expenditures for goods to the headline number increased to 0.99% (up from 0.71% in the prior quarter).
-- The contribution made by consumer services plunged to 0.05% (down sharply from 0.53% in the prior quarter). This plunge meant that the net contribution from consumer spending on both goods and services lowered the headline number -0.20% relative to 2Q-2013.
-- The growth rate contribution from private fixed investments weakened materially to 0.63% (from 0.96%).
-- Inventories were shown as growing faster than during the prior quarter, contributing +0.83% to the headline growth rate (more than doubling the +0.41% contribution during the prior quarter).
-- A growth in net governmental expenditures added 0.04% to the headline number, with all of that growth occurring at the state and local levels.
-- Exports contributed only 0.60% to the overall growth rate, down sharply from the 1.04% reported for the second quarter.
-- And imports were the largest single contributor to the reported improving growth -- by virtue of now subtracting only -0.30% from the headline number (compared to -1.10% during the prior quarter). This resulted primarily from weakening growth in demand for imported goods.
-- The annualized growth rate for "real final sales of domestic product" decreased slightly to 2.01% (down from 2.07% in the previous quarter). This is the BEA's "bottom line" measurement of the economy -- which remains substantially weaker than the headline number because of the ongoing buildup of inventories.
-- And as mentioned above, real per-capita disposable income improved slightly and it is now reported to have increased by an annualized $161 from quarter to quarter.
The Numbers
As a quick reminder, the classic definition of the GDP can be summarized with the following equation:
or, as it is commonly expressed in algebraic shorthand:
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) | $16.9 | = | $11.5 | + | $2.7 | + | $3.1 | + | $-0.5 |
| % of GDP | 100.0% | = | 68.4% | + | 16.0% | + | 18.6% | + | -2.9% |
| Contribution to GDP Growth % | 2.84% | = | 1.04% | + | 1.46% | + | 0.04% | + | -0.30% |
Quarterly Changes in % Contributions to GDP
| 3Q-2013 | 2Q-2013 | 1Q-2013 | 4Q-2012 | 3Q-2012 | 2Q-2012 | 1Q-2012 | 4Q-2011 | 3Q-2011 | 2Q-2011 | 1Q-2011 | 4Q-2010 | 3Q-2010 | 2Q-2010 | 1Q-2010 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total GDP Growth | 2.84% | 2.48% | 1.14% | 0.14% | 2.78% | 1.20% | 3.71% | 4.86% | 1.37% | 3.19% | -1.29% | 2.80% | 2.78% | 3.91% | 1.59% |
| Consumer Goods | 0.99% | 0.71% | 0.85% | 0.85% | 0.84% | 0.50% | 1.04% | 1.14% | 0.29% | 0.05% | 0.60% | 1.66% | 0.85% | 1.14% | 0.88% |
| Consumer Services | 0.05% | 0.53% | 0.69% | 0.29% | 0.31% | 0.78% | 0.94% | 0.51% | 1.14% | 0.98% | 0.81% | 1.21% | 1.02% | 1.07% | 0.54% |
| Fixed Investment | 0.63% | 0.96% | -0.23% | 1.63% | 0.39% | 0.68% | 1.21% | 1.39% | 1.96% | 1.16% | -0.05% | 1.13% | -0.04% | 1.77% | 0.11% |
| Inventories | 0.83% | 0.41% | 0.93% | -2.00% | 0.60% | -0.91% | 0.36% | 2.73% | -1.60% | 0.72% | -1.06% | -1.64% | 1.90% | 1.09% | 1.66% |
| Government | 0.04% | -0.07% | -0.82% | -1.31% | 0.67% | 0.05% | -0.28% | -0.31% | -0.52% | -0.25% | -1.61% | -0.87% | -0.07% | 0.61% | -0.63% |
| Exports | 0.60% | 1.04% | -0.18% | 0.15% | 0.05% | 0.51% | 0.56% | 0.38% | 0.92% | 0.64% | 0.48% | 1.47% | 1.27% | 1.10% | 0.73% |
| Imports | -0.30% | -1.10% | -0.10% | 0.53% | -0.08% | -0.41% | -0.12% | -0.98% | -0.82% | -0.11% | -0.46% | -0.15% | -2.15% | -2.87% | -1.70% |
| Real Final Sales | 2.01% | 2.07% | 0.21% | 2.14% | 2.18% | 2.11% | 3.35% | 2.13% | 2.97% | 2.47% | -0.23% | 4.44% | 0.88% | 2.82% | -0.07% |
| Summary For the markets this is a "Goldilocks" report: not so weak as to elicit real concern, and not so strong as to suggest the Federal Reserve re-thinking its QE stance. It is also better than expected. But superficial focus on the modest improvement in the headline number completely misses some worrisome deterioration in key fundamentals: -- Contributions to the headline number from aggregate consumer spending, fixed investments and exports all weakened -- enough to remove about a full percent from the growth rate. -- The "contributions" from growing inventories and weakening domestic demand for imported goods added 1.22% to the headline number. Growing inventories and weakening demand for imported goods do not augur well for long term economic growth. -- Real per capita disposable income is still increasing at an abysmal 0.4% annualized rate. If households continue to try to normalize their savings rates over the next few quarters (back towards the levels seen prior to the January FICA increase), those increased savings will have to come from tightened spending. That last item speaks to the current plight of households, whose spending still represents over 68% of the US economy. Given the anemic growth rates in real per capita disposable income, household savings rates well below recent comfort levels and the budgetary uncertainties resulting from the new healthcare mandates, it seems unlikely that those consumers will go on any kind of spending spree anytime soon -- however fervently Mr. Bernanke may wish it. |
Dick Lepre
dicklepre@rpm-mtg.com
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