1Q2022 Gross Domestic Product: Second Estimate

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In its second estimate of 1Q2022 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) reduced the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of -1.51% (-1.3% expected), down 0.09 percentage point (PP) from the “advance” estimate (“1Qv1”) and -8.40PP from 4Q2021.

As with 1Qv1, two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) -- made positive contributions to the 1Q headline that were more than offset by net exports (NetX) and government consumption expenditures (GCE). As for details:

PCE. Contribution to 1Q headline: +2.09PP; +0.33PP from 4Q and +0.26PP from 1Qv1. Spending on goods was revised up by $2.2 billion (nominal), led by motor vehicles and parts (+$10.1B). Spending on services was bumped higher (+$12.4B), led by expenditures of nonprofit institutions serving households (+$8.9B).

PDI. Contribution to 1Q headline: +0.10PP; -5.72PP from 4Q and -0.33PP from 1Qv1. PDI was revised down by $14.6B, led by private inventories (-$13.2B) and augmented by residential fixed investment (-$4.1B). Those declines were nearly offset by upward revisions to software (+$15.0B).

NetX. Contribution to 1Q headline: -3.23PP; -3.00PP from 4Q and -0.03PP from 1Qv1. Exports were revised up by $3.7B, led by goods (+$3.3B). However, imports were also increased by a much-larger $8.5B, led by goods (+$6.1B). Recall that changes in imports are inversely correlated with changes to the GDP headline.

GCE. Contribution to 1Q headline: -0.47PP; -0.01PP from 4Q and +0.01PP from 1Qv1. GCE was revised higher (+$6.2B), led by state and local government spending (+$5.1B).

The BEA’s real final sales of domestic product -- which ignores inventories -- was revised to -0.42% (+0.16PP from 1Qv1), a level 1.99PP below the 4Q estimate. 

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Consumer Metric Institute’s Rick Davis provided key takeaways of the report:

-- The economy is likely performing materially worse than this report indicates. The BEA has not had to correct for this level of inflation for over 40 years, and it is evidently not very good at doing so. Davis’ observation is in response to the BEA using a GDP deflator of 8.15%, lower than the 1Q CPI reading of 9.2%.

-- The huge inventory buildup that grossly distorted the 4Q2021 report (remember the media’s euphoria over the phenomenal +6.90% headline growth?) has neutralized, but the inevitable inventory draw down has only just begun.

-- Foreign trade removed 3.23% from the headline number. Given the current global economic picture, that is unlikely to improve anytime soon.

-- Household disposable income is getting hammered while the prices of gasoline, food and shelter are soaring. Consumer spending will eventually hit a wall when household “rainy day” funds dry up.

“This is setting up a long and hot summer of public discontent -- just in time to further fuel voter angst heading into the 2022 mid-term elections,” 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.