2Q2020 Gross Domestic Product: Third Estimate

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In its third estimate of 2Q2020 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) fine-tuned the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of -31.39% (-31.7% expected), up 0.31 percentage point (PP) from the second estimate (“2Qv2”) but -26.43PP from 1Q2020.

As noted in prior 2Q reports, two of the four groupings of GDP components -- net exports (NetX) and government consumption expenditures (GCE) -- contributed to 2Q growth; personal consumption expenditures (PCE) and private domestic investment (PDI) detracted.

The headline number’s uptick reflected mostly insignificant changes to line items, which can be summarized as upward revisions to consumer spending on services and residential investment that were partly offset by downward revisions to exports and to business investment in intellectual property products. The most noteworthy changes included:

* PCE, services. From -22.77% to -21.95%.

* PDI, intellectual property products. From -0.35% to -0.53%.

* PDI, residential. From -1.72% to -1.60%.

* NetX, services exports. From -2.76% to -2.95%.

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“There is nothing new in this report, which is merely the statistical fine tuning and rehashing of a quarter that ended nearly three months ago,” wrote Consumer Metrics Institute’s Rick Davis. “Unfortunately, the BEA’s monthly release cycle gives us three progressively refined views of the same past quarter, when what we really need to know is how the economy has been performing since then.

“This also sets up a critical first report for 3Q2020, to be released on October 29th -- six days before the 2020 U.S. presidential election. Although the actual numbers are likely to be something of a wild card (the current NY Fed and Atlanta Fed ‘real-time’ headline guesstimates differ by over 15%!), the ‘annualization-of-quarterly-changes’ methodology employed by the BEA is guaranteed to generate an eye-popping positive headline number (probably somewhere from 15% to over 30% of spectacular ‘growth’). Clearly a number of politicians are going to claim that the BEA has just verified a ‘V’ shaped recovery, for which they will take credit -- although by then most votes will already have been cast.”

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.