1Q2022 Gross Domestic Product: Third Estimate

 

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In its third estimate of 1Q2022 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 -1.57% (-1.4% expected), down 0.06 percentage point (PP) from the second estimate (“1Qv2”) and -8.46PP from 4Q2021.

As with 1Qv2, two groupings of GDP components -- net exports (NetX) and government consumption expenditures (GCE) -- were the drivers behind the 1Q contraction; personal consumption expenditures (PCE) and private domestic investment (PDI) blunted some of the headline decline. The update primarily reflected a downward revision to PCE that was partly offset by an upward revision to private inventory investment (a component of PDI). 

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As for details (all relative to 1Qv2):

PCE. The downward revision to consumer spending (-$49.6 billion, nominal) was led by health care (-$17.9B) and financial services and insurance (-$17.7B). Downward revisions to goods spending (-$4.6B) was widespread among almost all categories; the only increase occurred in gasoline and other energy goods (+$4.2B).

PDI. Upward revisions (+$48.4B) to PDI were again dominated by the change in private nonfarm inventories (+$44.2B). Residential fixed investment was revised up by $0.2B.

NetX. Exports of goods were boosted by $7.4B while goods imports were revised down by $8.5B.

GCE. Defense-related gross investment (-$2.9B) dominated revisions in this category, which were partially offset by state and local gross investment (+$1.3B).

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According to Consumer Metrics Institute’s Rick Davis, the key points of this report can be summarized as follows:

-- Neither the softening of spending on services nor the upward revision to inventories bode particularly well for the economy.

-- The ongoing downward revisions to real household disposable income is problematic.

-- The economy is likely far worse than recorded in this release, due to the BEA's drastic underreporting of inflation.

“Unfortunately, it is probable that none of the key factors that caused the U.S. economy to contract during 1Q2022 have improved materially in the interim,” Davis concluded. “The 1Q downturn was not a ‘one-off’ anomaly that will be totally forgotten long before the fall elections.”

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.