2Q2022 Gross Domestic Product: Third Estimate

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Along with revisions to data extending back through 1Q2017, in its third estimate of 2Q2022 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 -0.58% (-0.6% expected), essentially unchanged from the second estimate (“2Qv2”) and +1.06 percentage points (PP) from the revised 1Q2022.

As with prior 2Q reports, two groupings of GDP components -- private domestic investment (PDI) and government consumption expenditures (GCE) -- pulled the headline estimate “into the red;” those negative contributions were partially offset by personal consumption expenditures (PCE) and net exports (NetX). The update primarily reflected an upward revision to consumer spending that was countered by further deterioration in PDI and a moderation in NetX.

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As for details (all relative to 2Qv2):

PCE. The upward revision to consumer spending (+$168.0 billion, real) was led by services (+$126.3B). Other services (+$65.7B), health care (+$29.3B), and recreation services (+$27.8B) dominated the services category. Spending on goods also increased (+$33.0B); recreational goods and vehicles (+$55.3B), furnishings and durable household equipment (+$28.5B), and gasoline and other energy goods (+$17.9B) were the top three movers in this category.

PDI. Equipment fixed investment (-$92.8B) dominated the downward revision to PDI. This was partially offset by upward revisions to residential investment (+$2.4B) and inventories (+$26.3B).

NetX. Exports were boosted by $58.0B while imports were revised up by $14.0B.

GCE. Upward revisions to nondefense federal consumption expenditures (+$42.7B) and state and local consumption expenditures (+$5.0B) made this category’s contribution to headline GDP change less negative relative to both 2Qv2 and 1Q.

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

-- The headline number probably benefits substantially from under reporting of inflation. For this estimate the BEA assumed an effective annualized deflator of 9.10%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in its CPI-U index (quarter average over quarter average) was significantly higher at 10.5%. Underestimating inflation results in optimistic growth rates, and if the BEA’s nominal data was deflated using CPI-U inflation information the headline growth number would have been -1.86%.

-- Although the BEA’s “bottom line” number (real final sales, which excludes inventories) is positive, there is weakness in consumer spending on goods and commercial fixed investments.

-- Household real disposable income continues to get hammered. The most telling number is household savings, which is plunging as household budgets continue to get squeezed.

“The next report, covering the third quarter, will be released just prior to the mid-term elections,” Davis observed. “It should be interesting.”

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.