2Q2013 Gross Domestic Product: Second (Preliminary) Estimate

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The Bureau of Economic Analysis (BEA) estimated 2Q2013 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of +2.5 percent. That rate was a whopping 1½ times higher than the 1.7 percent reported less than a month ago, and beat expectations of 2.2 percent. Private domestic investment (PDI) and personal consumption expenditures (PCE) added to 2Q growth, in that order; government consumption expenditures (GCE) dragged on growth, while net exports (NetX) was a “wash.”

The most material change in this report was the improvement in NetX. Exports contributed 1.11 percent to the overall growth rate, up sharply from the 0.71 percent previously reported (and up even more remarkably from the -0.18 percent contraction recorded in 1Q2013). Imports subtracted 1.11 percent from the headline number -- exactly offsetting the growth provided by exports.

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For this revision, Consumer Metrics Institute (CMI) pointed out “the BEA assumed annualized net aggregate inflation of 0.71 percent. In contrast, during 1Q the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) rose by 1.04 percent (annualized), and the price index published by the Billion Prices Project (BPP) rose at an annualized rate of 1.76 percent. As a reminder: an understatement of assumed inflation increases the reported headline number -- and in this case the BEA's relatively low deflator boosted 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 lower +2.20 percent. And if the BPP index (which arguably best reflects the experiences of the American consumer) had be used as the deflator, the economy would have been a more modest +1.48 percent annualized rate.”

ZeroHedge highlighted a disturbing trend in a critical part of the report: Real Final Sales growth is “collapsing.” In fact, as ZH showed, the current slow level of growth in real final sales has never occurred outside of a recession. Nonetheless, this report will almost certainly provide support for the Federal Reserve to “taper” its purchases of Treasury bonds and mortgage-backed securities, should it choose to do so.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.