1Q2023 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 1Q2023 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +1.06% (+2.0% expected), down 1.50 percentage points (PP) from 4Q2022’s +2.56%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2023 was 1.56% higher than in 1Q2022; that growth rate was slightly faster (+0.68PP) than 4Q2022’s +0.88% relative to 4Q2021.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), net exports (NetX), and government consumption expenditures (GCE) -- contributed positively to the 1Q headline. Private domestic investment (PDI) detracted from it.

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As for details (all comparisons to 4Q2022) --

PCE:

* Goods. Spending on durable goods jumped (+$89.4 billion, chained 2012 dollars), led by motor vehicles and parts (+$55.4B) and recreational goods and vehicles (+$14.8B). Spending on non-durable goods edged up (+$7.1B), led by other nondurable goods (+$7.8B).

* Services. Gains (+$50.4B) were led by health care (+$32.6B) and food services and accommodations (+$11.0B).

PDI:

* Fixed investment. This decline (-$3.7B) was led by a broad-based retreat in equipment (-$24.0B), followed by residential investment (-$6.1B), but largely offset by expenditures on nonresidential structures (+$12.2B) and intellectual property products (+$12.0B).

* Inventories. Nonfarm inventories shrank by $142.1B; farm: +$7.8B.

NetX:

* Exports. Goods exports rose by $45.0B; services: -$10.3B.

* Imports. Goods imports rose by $29.6B; services: -$0.3B. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE: State and local consumption expenditures (+$13.5B) led this category, followed by federal nondefense consumption expenditures (+$11.8B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +3.32% (up 2.23PP from 4Q).

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

-- This report is not nearly as bad as the headline number might indicate, having suffered materially from inventory drawdowns.

-- Consumer spending on both goods and services improved to a respectable growth rate.

-- Three quarters of the contraction in spending for commercial/private fixed investment essentially stopped, and governmental spending remained robust.

-- Perhaps most significantly, household disposable income saw enough of an increase that savings rates took a noticeable upturn.

“Except for the modest headline number, this was not the ‘start of a downturn’ report that many had expected,” Davis concluded, adding, “In fact, consumer spending on goods showed surprising strength after suffering through four consecutive quarters of contraction. That noted, we will eagerly await the next round of BEA annual adjustments three months hence.”

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.