2Q2023 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 2Q2023 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +2.41% (+1.5% expected), up 0.42 percentage points (PP) from 1Q2023’s +2.00%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 2Q2023 was 2.56% higher than in 2Q2022; that growth rate was faster (+0.76PP) than 1Q2023’s +1.80% relative to 1Q2022.

Three of the four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- contributed positively to the 2Q percent-change headline. Net exports (NetX) detracted from it.

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As for details (billions of chained 2012 dollars; all comparisons to 1Q2023) --

PCE (+$58.4B):

* Goods. Spending on durable goods rose (+$2.1B), led by recreational goods and vehicles (+$22.2B), but partially offset by motor vehicles and parts (-$12.1B). Growth in spending on nondurable goods showed more momentum (+$7.7B), led by gasoline and other energy goods (+$13.7B); Clothing and footwear dropped (-$7.6B).

* Services. Gains (+$46.5B) were led by housing and utilities (+$17.1B) and closely followed by health care (+$16.9B).

PDI (+$50.1B):

* Fixed investment. This increase (+42.5B) was concentrated in equipment (+$32.4B) -- especially transportation equipment (+$29.1B). Residential investment declined (-$6.0B).

* Inventories. Farm inventories expanded (+$6.3B); nonfarm: +$0.5B.

NetX (+$2.9B):

* Exports. Goods exports slumped by $83.4B; services: +$3.3B.

* Imports. Goods imports fell by $68.22B; services: -$9.7B. Recall that the net change in imports is inversely related to the change in the GDP headline.

Also note that, although NetX was positive on an absolute-dollar basis, the rate of change decelerated (hence the negative QoQ % change).

GCE (+22.2B): State and local consumption expenditures (+$11.0B) led this category, followed by state and local gross investment (+$7.4B); federal defense gross investment: +$4.1B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +2.28% (down 1.86PP from 1Q).

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

-- The consumer spending growth rate softened significantly, contributing only 1.11PP to the headline number. This was down 1.67PP from 1Q.

-- The lower growth rate in consumer spending was consistent with the continued erosion of the household savings rate, indicating that households are finding their budgets tighter than they might like. Although inflation has moderated, household incomes still have some catching up to do.

-- The BEA’s own “bottom line” (real final sales of domestic product) essentially halved from the prior quarter.

“At face value this was a good report, since once again the headline number falls into the ‘Goldilocks’ zone,” Davis concluded.

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.