1Q2020 Gross Domestic Product: Third Estimate

Click image for larger version

In its third estimate of 1Q2020 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 -4.99% (-5.0% expected), up 0.06 percentage point (PP) from the second estimate (“1Qv2”) but -7.11PP from 4Q2019.

As noted in prior 1Q reports, two of the four groupings of GDP components -- net exports (NetX) and government consumption expenditures (GCE) -- contributed to 1Q growth; personal consumption expenditures (PCE) and private domestic investment (PDI) detracted.

The headline GDP was essentially unrevised from 1Qv2, thanks to an upward revision to business investment (+0.21PP) that was offset by downward revisions to inventory investment (-0.13PP), consumer spending (-0.04PP), and exports (-0.04PP). 

Click image for larger version

“There really aren't any key points in this report,” wrote Consumer Metric Institute’s Rick Davis. “It is merely filling the time gap before the July 30th initial report on the second quarter. However, its inherent lameness does point out several things:

-- Treating 1Q2020 as a single (and implicitly unified) time span is ridiculous. The March economy bore no resemblance to the January economy, and lumping them together creates a bland “fruit cocktail” that does service to neither apples nor oranges.

-- This is a further indictment of the now over 80-year-old methodologies of the BEA. If that organization cannot provide more timely and more focused data for decision makers, perhaps it is time for major change.

-- And the annualized quarterly reporting regimen is about to present yet another absurdity: according to the Atlanta Fed's GDPNow forecast, on July 30th mainstream media will be reporting that the U.S. economy is contracting at a -45.5% rate. No, the size of the economy is not going to halve over the next 12 months. But annualized quarterly numbers can produce exactly those kinds of headlines.

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.