1Q2023 Gross Domestic Product: Third Estimate

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In its third estimate of 1Q2023 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 +2.00% (+1.4% expected), up 0.73 percentage point (PP) from the second estimate (“1Qv2”) but -0.56PP from 4Q2022.

Once again, three groupings of GDP components -- personal consumption expenditures (PCE), net exports (NetX), and government consumption expenditures (GCE) -- contributed positively to the headline. Private domestic investment (PDI) detracted from it. The updated headline estimate primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to nonresidential fixed investment and federal government spending. Imports, which are a subtraction in the calculation of GDP, were revised down -- resulting in a positive contribution to the headline.

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As for details (all relative to 1Qv2):

PCE. The upward revision to consumer spending (+$13.8 billion, chained 2012 dollars) was led by services (+16.1B) -- especially health care (+$12.4B). Downward revisions to spending on goods (-$4.0B) were widespread but most concentrated among nondurables (-$3.3B).

PDI. Downward revisions to PDI (-$4.2B) were led by information processing equipment (-$8.6B). intellectual property products (-$6.8B) and the change in nonfarm private inventories (-$3.4B) compounded the decline but were partially offset by an upward revision in nonresidential structures (+$4.9B) and residential fixed investment (+$2.1B).

NetX. Exports were revised higher (+$16.2B) -- somewhat evenly split between goods (+$8.5B) and services (+$7.3B). Imports were revised lower (-$18.8B) -- especially goods (-$19.5B). The net effect was a dramatic increase in this category’s positive contribution to the headline.

GCE. Revisions to this category (-$1.7B) were dominated by federal national defense (-$6.0B) and partially offset by state and local gross expenditures (+$2.9B).

In light of the downward revision to private inventories, growth in real final sales of domestic product bumped higher, to +4.14% (+0.77PP from 1Qv2 and 3.05PP above 1Q).

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“About a month from now, the BEA will release its first estimate (the ‘advance’ estimate) of 2Q GDP growth,” wrote analyst Wolf Richter. “And the figures we’ve seen so far for 2Q give no indication of any kind of recessionary decline. On the contrary. And so this modern-day absurd play, ‘Waiting for the Recession,’ will drag on for a while longer. And that makes sense, with these trillions of dollars that were printed and handed out during the pandemic still floating around out there at every level, and still getting spent, and still fueling inflation.”

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.