4Q2022 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 4Q2022 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +2.89% (+2.7% expected), down 0.36 percentage point (PP) from 3Q2022’s +3.25%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 4Q2022 was 0.96% higher than in 4Q2021; that growth rate was noticeably slower (-0.98PP) than 3Q2022’s +1.94% relative to 3Q2021.

All four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- contributed positively to the 4Q headline. 

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As for details (all comparisons to 3Q2022) --

PCE:

* Goods. Spending on durable goods nudged higher (+$2.9 billion, chained 2012 dollars), led by motor vehicles and parts (+$10.1B) but largely offset by a drop-off in other durable goods (-$9.1B). Spending on non-durable goods rose (+$12.4B), led by other nondurable goods (+$5.6B).

* Services. Gains (+$56.2B) were led by health care (+$21.0B).

PDI:

* Fixed investment. This decline (-$60.9B) was led by residential investment (-$46.4B), and partially offset by expenditures on software (+$20.8B).

* Inventories. Nonfarm inventories ballooned by $89.9B; farm: +$1.1B.

NetX:

* Exports. Goods exports dipped by $34.0B; services: +$21.5B.

* Imports. Goods imports fell $47.8B; services: +$0.6B. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE: Federal nondefense consumption expenditures (+$11.2B) led this line item, followed by state and local consumption expenditures (+$9.2B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +1.43% (down 3.01PP from 3Q).

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

-- The headline number seems to be close enough to 3% to be respectable. This masks relatively weak growth in consumer spending and materially contracting fixed investments.

-- The contraction in fixed investments can be found in IT spending and residential construction, two sectors that we might expect to be driving a healthy economy.

-- Household disposable income did tick upward, although savings rates remain near record lows. Households remain cautious in their spending, as the lackluster consumer goods and services growth rates and growing inventories confirm.

“This is yet another case where the headline number is better than the underlying details might warrant,” Davis concluded, adding, “This report simply does not show an economy that is ready for explosive growth.”

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.