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Changes In Final Estimate 2Q 2019 GDP Are Statistical Noise

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Posted on 27 September 2019 by Rick Davis, Consumer Metrics Institute BEA Revises Second Quarter 2019 GDP Growth Downward to 2.01%In their third and final 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 +2.01% annual rate, down -0.03 percentage points (pp) from their previous estimate and down -1.08pp from the prior quarter.Please share this article - Go to very top of page, right hand side, for social media buttons.All of the revisions in this report can be characterized as "statistical noise." None of the line item revisions are material to our understanding of the state of the US economy. Annualized household disposable income was revised lower than in the previous report, and the

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posted on 27 September 2019

by Rick Davis, Consumer Metrics Institute

BEA Revises Second Quarter 2019 GDP Growth Downward to 2.01%

In their third and final 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 +2.01% annual rate, down -0.03 percentage points (pp) from their previous estimate and down -1.08pp from the prior quarter.

Changes In Final Estimate 2Q 2019 GDP Are Statistical Noise


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All of the revisions in this report can be characterized as "statistical noise." None of the line item revisions are material to our understanding of the state of the US economy.

Annualized household disposable income was revised $9 lower than in the previous report, and the household savings rate was reported to be 8.0%, unchanged from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 2.60%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 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 2.82%.

Among the notable items in the report :

  • Consumer spending for goods was reported to be growing at a 1.74% rate, down -0.04pp from the previous estimate and up 1.42pp from the prior quarter.
  • The contribution to the headline from consumer spending on services was reported to be 1.29%, down -0.03pp from the previous report and up 0.83pp from the prior quarter. The combined consumer contribution to the headline number was 3.03%, down -0.07pp from the previous report.
  • The headline contribution for commercial/private fixed investments was revised to -0.25%, down -0.05pp from the previous report and down -0.81pp from the prior quarter.
  • Inventories subtracted -0.91% from the headline number, unchanged from the previous report and down -1.44pp 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 0.82%, up 0.05pp from the previous report and up 0.32pp from the prior quarter.
  • The contribution from exports was revised to -0.69%, up 0.02pp from the previous report and down -1.18pp from the prior quarter.
  • Imports added 0.01% annualized 'growth' to the headline number, up 0.02pp from the previous report and down -0.22pp from the prior quarter. Foreign trade contributed a net -0.68pp to the headline number.
  • The annualized growth in the 'real final sales of domestic product' was revised to 2.92%, down -0.03pp from the previous report and up 0.36pp 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 revised $9 lower than in the previous estimate. The annualized household savings rate was 8.0% (unchanged from the previous report). In the 44 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.48%.

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 :

Changes In Final Estimate 2Q 2019 GDP Are Statistical Noise

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 :

Changes In Final Estimate 2Q 2019 GDP Are Statistical Noise


Summary and Commentary

As mentioned above, there is nothing material in this latest report. The more interesting data will be contained in the BEA's next report on October 30th, which will go a long ways towards telling us if the US economy is tracking in the same direction as Europe -- i.e., tilting into mild contraction.

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