2Q2013 Gross Domestic Product: Third (Final) Estimate

Click image for larger version

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 headline rate was essentially unchanged from (just 0.04 percent lower than) last month’s “preliminary” estimate, and below expectations of 2.6 percent. Private domestic investment (PDI) and personal consumption expenditures (PCE) added to 2Q growth, in that order; net exports (NetX) and government consumption expenditures (GCE) exerted virtually no drag on growth.

Changes to consumer spending on goods and services were immaterial in this revision. Inventory growth was marginally lower than previously reported, and the rate of governmental-expenditure contraction was also reduced -- remaining significantly more benign than the levels typical of the past four years.

Click image for larger version

Expanding on the last point above, Consumer Metrics Institute (CMI) observed that, “Governmental expenditures are no longer contracting at a rate that significantly impacts the headline number” (emphasis in the original).

“In fact, the era of contracting governments seems to have ended. In 1Q2011 aggregate governmental belt-tightening was shaving -1.61% from the headline number, and as recently as 4Q2012 the headline number was being pulled down -1.31% by shrinking governmental expenditures….

“Changes in governmental expenditure rates generally lag the private sector economic spending by a year or so. During the Great Recession aggregate (and stimulus enhanced) real governmental expenditures didn't peak until 3Q2009 -- some 10 quarters after real governmental receipts peaked and well after the private sector had tanked. Since that 3Q2009 spending peak, aggregate real governmental spending has fallen 6.7% (5.5% at the Federal level and 7.5% at the state and local levels) -- certainly material, but measured from an unsustainable and stimulus laden peak.

“Not surprisingly, with stimulus packages in full swing the real aggregate deficit rates peaked in 2Q2009. Since then the aggregate governmental deficit rates have halved -- but they remain over twice the levels typical of 2007 and earlier” (emphasis in the original).

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.