2Q2020 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 2Q2020 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of -32.91% (-35.0% expected), down 27.95 percentage points (PP) from 1Q2020’s -4.96%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 2Q2020 was 9.54% lower than in 2Q2019; that growth rate was dramatically slower (-9.86PP) than 1Q2020’s +0.32% relative to 1Q2019.

Two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) were the drivers behind the contraction, whereas net exports (NetX) and government consumption expenditures (GCE) made minor positive contributions.

As for details --

PCI (Contributed -25.05PP to the headline, down 20.3PP from 1Q):

• Goods. Consumer spending for goods contracted at a rate of 2.12PP (down 2.15PP from 1Q), as the downturn in nondurable goods purchases swamped an uptick in durable goods.
• Services. Spending on services slumped at a rate of 22.93PP (down 18.15PP from 1Q).

PDI (Contributed -9.36PP, down 780PP from 1Q):

• Fixed investment. Nonresidential fixed investment fell at a rate of 5.38PP (-5.15PP from 1Q), while residential investment declined at a rate of 1.76PP (-2.44PP from 1Q).
• Inventories. Inventories declined at a rate of 3.98%, down 2.64PP from 1Q.

NetX (Contributed 0.68PP, down 0.45PP from 1Q):

• Exports. Exports fell at a rate of 9.38PP, down 8.26PP from 1Q.
• Imports. A collapse in imports (recall that imports are inversely correlated with GDP) added 10.06PP to the headline, up 7.81PP from 1Q.

GCE (Contributed 0.82PP, up 0.60PP from 1Q).

Annualized growth in the BLS’s real final sales of domestic product, which excludes the value of inventories) was -28.93% (-25.31PP from 1Q).

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The key points of this report can be summarized as follows, Consumer Metric Institute’s Rick Davis indicated:

-- The numbers are far beyond merely historically bad.

-- But the year-over-year data is not nearly as disastrous as the annualized headline suggests.

-- We have pointed out before that the BEA’s quarterly regimen and methodologies render their data useless for policy making purposes. It is perhaps an academic treasure trove for PhD candidates, but the policy informing purpose that FDR envisioned for the agency in 1939 is simply no longer being met. In the 21st century -- with millisecond transacting -- there is no excuse for not replacing this exercise with a monthly series, published in the middle of the following month. The “consistency” mantra for maintaining the current series helps the PhD candidates, but it utterly fails the American people. Let the PhD candidates figure out how to reconcile a new monthly series to the historical quarterly data.

-- This sets the stage for an equally outrageous up-side quarterly report, to be published just days before the US 2020 election -- although most voters by that time will be in a “who cares” mode.

“There is not much more we can say,” Davis concluded. “Things are bad, but reports like this don’t help any ongoing policy or response debates. And the next release will merely be more of the same. Luckily, the pandemic will probably keep most people from taking note of this mess of a report.”

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.