4Q2019 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2019 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) bumped the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.12% (+2.1% expected), up 0.02 percentage point (PP) from the second estimate (“4Qv2”) and +0.01PP from 3Q2019.

As noted in prior 4Q reports, three of the four groupings of GDP components -- personal consumption expenditures (PCE), net exports (NetX) and government consumption expenditures (GCE) -- contributed to 4Q growth; private domestic investment (PDI) detracted.

Changes in this report were truly statistical noise: No component aggregate was revised by more than ±0.07PP; even at the next level down in line items, revisions were smaller than ±0.09PP. Contribution to the GDP headline from PCE was shown to be marginally stronger than in 4Qv2, whereas contributions from the other categories were even more marginally weaker. To provide an idea of just how insignificant the revisions were, the largest positive change was to health care spending (+$8.8 billion), while the largest negative change was to gross output of nonprofit institutions (-$10.6 billion) -- in an economy of $21.7 trillion (nominal dollars). 

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Consumer Metric Institute’s Rick Davis put the above numbers in further context: “March 2020 has made this report completely irrelevant,” he wrote. “The BEA has metaphorically fine-tuned the deck chairs on the Titanic. In a matter of weeks we have transitioned from the above numbers to the reality of unprecedented economic contraction and soaring unemployment rates last seen 90 years ago.

“In fairness, the BEA did what it was charged with doing. But even during times of economic stability, the BEA's quarterly ritual of issuing a preliminary growth estimate, followed a month later by a first revision, followed yet a month later by a final estimate, is obscenely antiquated.

“As a further indictment of the BEA's methodologies, current ‘real time’ estimates -- using those exact same methodologies -- provide us with annualized growth estimates for 1Q2020 of 3.1% (GDPNow, Atlanta Fed) and 1.5% (NowCast, New York Fed). If you are a betting person, we would suggest that you take the ‘under.’”

Davis concluded by saying, “Unlike 90 years ago, this economy won't require a decade and a global war for full recovery. But the contraction will certainly spike lower than anything this generation has ever seen.”

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.