1Q2022 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 1Q2022 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of -1.41% (+1.1% expected), down 8.31 percentage points (PP) from 4Q2021’s +6.89%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2022 was 3.6% higher than in 1Q2021; that growth rate was slightly slower (-2.0PP) than 4Q2021’s +5.5% relative to 4Q2020.

Two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) -- contributed positively to the 1Q headline. However, that was more than offset by net exports (NetX) and government consumption expenditures (GCE).

As for details --

PCE (Contributed 1.83PP to the headline, up 0.07PP from 4Q):

* Goods (-0.31PP from 4Q). Spending on non-durable goods (+$103.4 billion, nominal) was nearly double that of durable goods (+$54.1B), led by gasoline and other energy goods (+$35.3B).

* Services (+0.38PP from 4Q). Gains (+$233.4B) were broad-based, led by housing and utilities (+$64.4B).

PDI (Added 0.43PP, down 5.39PP from 4Q):

* Fixed investment (+0.77PP from 4Q). Gains in investment (+$177.0B) were led by equipment (+$69.7B) and residential (+$53.0B).

* Inventories (-6.16PP from 4Q). Nonfarm inventories shrank by $40.1B; farm: -$2.8B.

NetX (Detracted 3.20PP, down 2.97PP from 4Q):

* Exports (-2.92PP from 4Q). Goods exports rose by $50.1B; services: +$18.5B.

* Imports (-0.07PP from 4Q). Goods imports rose $263.6B; services: +$11.8B.

GCE (Detracted 0.48PP, down 0.02PP from 4Q). Although GCE fell on a QoQ percentage basis, the category saw gains in absolute terms -- primarily in state and local consumption expenditures (+$56.8B)

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was -0.58% (down 2.15PP from 4Q).

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Consumer Metric Institute’s Rick Davis summarized the key points of this report as follows:

-- The report heralds a “sea change” in the state of the U.S. economy, from being barely propped up by pandemic relief packages to something far closer to free fall.

-- This particular report is mostly about domestic household income and retail inventories normalizing. The residual minor growth in consumer spending was funded entirely from reduced savings.

-- Critically, from the perspective of this report, the impact of economic distortions caused by Russia’s Ukrainian invasion and Federal Reserve rate hikes (and “quantitative tightening”) are merely ominous clouds gathering on the horizon. Those specific shocks are waiting for the next quarter’s reports.

-- From the Fed’s perspective, “StagFlation” is really bad. But the upcoming “ContractiFlation” is a whole new level of nightmare.

“The BEA’s ‘live’ reporting on past economic downturns (e.g., 2007-2009) have been plagued by significant lags. Their antiquated methodologies simply cannot accurately capture the state of an economy in rapid transition. It is highly likely that the first and second quarters of 2022 will be far worse in the next several annual revisions,” Davis concluded.

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.