1Q2024 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 1Q2024 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +1.59% (+2.3% expected), down 1.80 percentage points (PP) from 4Q2023’s +3.39%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2024 was 2.97% higher than in 4Q2023; that growth rate was slower (-0.17PP) than 4Q2023’s +3.13% relative to 4Q2022.

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

“The increase in real GDP primarily reflected increases in consumer spending, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by a decrease in private inventory investment,” the BEA reported. “Imports, which are a subtraction in the calculation of GDP, increased.”

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As for details (all values are billions of chained 2017 dollars; all comparisons to 4Q2023) --

PCE (+96.8):

• Goods (-5.8). Spending on durable goods fell (-6.3) led by motor vehicles and parts (-13.9). Growth in spending on nondurable goods was absent (0.0), as a drop in gasoline and other energy goods (-9.2) was offset by other line items.
• Services (+99.5). Gains were led by health care (+35.9) and financial services and insurance (+20.2).

PDI (+32.3):

• Fixed investment (+52.3). This increase was led by residential investment (+24.6), with nonresidential investment close behind (+23.7) -- particularly software (+20.2) and information processing equipment (+14.2). Transportation equipment showed the largest loss (-18.5).
• Inventories (-19.5). Nonfarm inventories contracted (-18.8); farm: -0.7.

NetX (-54.7):

• Exports (+5.8). Goods exports rose by 3.7; services: +2.0.
• Imports (+60.4). Goods imports increased by 47.1; services: +13.0. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE (+11.5): State and local consumption expenditures (+10.2) led this category. Federal expenditures declined (-0.9) but this ignores outlays via transfer payments.

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +1.94% (down 1.92PP from 4Q).

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Despite the slowdown, “the economy was on solid ground,” wrote MarketWatch’s Jeffry Bartash. “Consumer spending, the main engine of the growth, rose at a healthy 2.5% clip to lead the way. Business spending was also stronger than expected.

“What’s more, there’s little evidence the economy is headed for tougher times. While early data for April have been somewhat soft, very few economists think a recession is likely.” If his forecast proves true, it will be primarily attributable to 2024 being an election year.

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.

4Q2023 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) boosted the headline growth rate of the U.S. economy to above both prior estimates -- i.e., a seasonally adjusted and annualized rate (SAAR) of +3.40% (+3.2% expected), up 0.17 percentage point (PP) from the second estimate (“4Qv2”) but -1.48PP from 3Q2023.

As can be seen in the right-hand graph above, the underlying components have shifted around quite noticeably over time. Although all four groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX), and government consumption expenditures (GCE) -- have consistently contributed positively to the headline, the contributions of PDI and NetX have diminished.

“The increase in real GDP [in the 4Qv3 revision] primarily reflected increases in consumer spending, state and local government spending, exports, nonresidential fixed investment, federal government spending, and residential fixed investment that were partly offset by a decrease in private inventory investment,” the BEA reported. “Imports, which are a subtraction in the calculation of GDP, increased.”

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As for details (billions of chained 2017 dollars; all relative to 4Qv2) --

PCE (+11.8):

* Goods (-3.4). Spending on durable goods edged up (+0.2), led by motor vehicles and parts (+0.7) and recreational goods and vehicles (+0.4) but largely offset by furnishings and durable household equipment (-0.8). Also, nondurable goods fell (-3.4), led by food and beverages for off-premises consumption (-2.0) and other nondurable goods (-1.3).

* Services (+14.5). A jump in health care costs (+11.1) dominated this category.

PDI (-1.1):

* Fixed investment (+10.2). Gains in nonresidential investment (+11.2) were spread among structures (+4.9), equipment (+2.0), and intellectual property products (+3.5). Residential fixed investment was revised by -0.1.

* Inventories (-11.4). Nonfarm inventories (-11.5) led the drop in this category.

NetX (-3.6):

* Exports (-8.0). Services (-13.3) led the downward revision in this category.

* Imports (-4.3). Here, too, services (-4.0) dominated. Because imports are a subtraction in the calculation of GDP, the downward revision tempered 4Q’s NetX decline.

GCE (+3.7):

* Federal (+0.3). Nondefense consumption expenditures (+0.5) led this category.

* State and local (+3.3). Gross investment (+2.9) dominated here.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.86% (+0.37PP from 4Qv2), a level 0.26PP above the 3Q2023 estimate. QoQ growth in gross domestic income, by contrast, was reportedly even stronger than GDP, at +4.8%, up from +1.9% in 3Q2023.

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“The strong GDP number -- 3.4% vs 3.2% expected -- is another reminder of how resilient this economy continues to be,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

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.

4Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 4Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised the growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +3.21% (+3.3% expected), down 0.06 percentage point (PP) from the “advance” estimate (“4Qv1”) and -1.65PP from 3Q2023.

As with 4Qv1, 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 percent-change headline. “Compared to 3Q2023, the deceleration in real GDP in 4Q primarily reflected a downturn in private inventory investment and slowdowns in federal government spending, residential fixed investment, and consumer spending,” the BEA wrote, adding, “Imports decelerated.”

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As for details (billions of chained 2017 dollars; all relative to 4Qv1) --

PCE (+$5.1B):

* Goods (-$7.6B). Spending on durable goods retreated ($7.2B), led by recreational goods and vehicles (-$6.8B). A decline in nondurable goods (-$0.9B) was led by clothing and footwear (-$2.9B).

* Services (+$12.1B). Health care (+$16.5B) dominated the jump in household consumption expenditures (+$16.7B).

PDI (-$12.3B):

* Fixed investment (+$7.3B). Gains were balanced between nonresidential (+$3.4B) -- led by structures (+$6.6B) and intellectual property products (+$4.1B) but partially offset by equipment (-$8.4B) -- and residential investment (+$3.4B).

* Inventories (-$16.4B). Nonfarm inventories (-$14.2B) led the drop in this category.

NetX (-$6.7B):

* Exports (+$0.6B). Goods (+$0.4B) led the upward revision in this category.

* Imports (-$7.3B). Goods (-$4.0B) held a narrow lead over services (-$3.1B). Because imports are a subtraction in the calculation of GDP, the downward revision nudged NetX up relative to 4Qv1.

GCE (+$8.9B):

* Federal (-$0.9B). Nondefense consumption expenditures (+$-1.8B) led this category.

* State and local (+$9.6B). Gross investment (+$9.5B) dominated.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.49% (+0.28PP from 4Qv1), a level 0.11PP below the 3Q2023 estimate. 

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“This all points to more domestic demand growth than previously thought and a hotter economy in general,” said James Knightley, chief international economist at ING.

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.

4Q2023 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 4Q2023 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +3.28% (+2.0% expected), down 1.59 percentage points (PP) from 3Q2023’s +4.87%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 4Q2023 was 3.11% higher than in 4Q2022; that growth rate was faster (+0.18PP) than 3Q2023’s +2.93% relative to 3Q2022.

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 percent-change headline.

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As for details (billions of chained 2017 dollars; all comparisons to 3Q2023) --

PCE (+$108.4B):

* Goods (+$50.8B). Spending on durable goods rose (+$23.2B), led by recreational goods and vehicles (+$20.9B). Growth in spending on nondurable goods was even stronger (+$28.1B), led by other nondurable goods (+$17.5B).

* Services (+$58.7B). Gains were led by health care (+$21.8B) and food services and accommodations (+$19.5B).

PDI (+$21.0B):

* Fixed investment (+17.2B). This increase was broadly distributed among nonresidential structures (+$5.1B), equipment (+$3.0B), and intellectual property products (+$7.3B); residential investment (+$1.9B) was quite modest, while transportation equipment (-$17.6B) showed the largest loss.

* Inventories (+$4.9B). Nonfarm inventories expanded (+$5.6B); farm: -$0.5B.

NetX (+$22.5B):

* Exports (+$38.3B). Goods exports rose by $19.5B; services: +$18.7B.

* Imports (+$15.8B). Goods imports increased by $5.4B; services: +$9.8B. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE (+31.0B): State and local consumption expenditures (+$11.8B) led this category, followed by state and local gross investment: +$9.6B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +3.21% (down 0.39PP from 3Q).

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Joe Brusuelas, chief economist at the tax and consulting firm RSM, said he thinks consumer spending may have been even stronger than indicated -- primarily because the report “did not adequately capture” increased holiday splurging on travel and other services. On the other hand, the Chicago Fed's National Activity Index (CFNAI) was negative in December. A CFNAI value of zero has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth; and positive values with above-average 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.

3Q2023 Gross Domestic Product: Third Estimate

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In its third estimate of 3Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) returned the headline growth rate of the U.S. economy to on par with the initial estimate -- i.e., a seasonally adjusted and annualized rate (SAAR) of +4.86% (+5.2% expected), down 0.29 percentage point (PP) from the second estimate (“3Qv2”) but +2.06PP from 2Q2023.

As can be seen in the right-hand graph above, the underlying components have shifted around quite noticeably over time. In 3Qv1 and 3Qv2, three groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI), and government consumption expenditures (GCE) -- had contributed positively to the headline while net exports (NetX) detracted from it. In 3Qv3, by contrast, all four components contributed positively to the headline -- although the contribution from NetX was marginal at best.

This report “primarily reflected a downward revision to consumer spending,” the BEA wrote. “Imports, which are a subtraction in the calculation of GDP, were revised down,” resulting in NetX moving ever so slightly into positive territory.

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As for details (billions of chained 2017 dollars; all relative to 3Qv2) --

PCE (-$18.1B):

• Goods (+$2.3B). Spending on durable goods retreated ($0.6B), led by motor vehicles and parts (-$0.5B). However, nondurable goods increased ($2.8B), led by gasoline and other energy goods (+$3.2B).
• Services (-$19.9B). Household consumption expenditures tumbled ($24.1B), led other services (-$16.0B).

PDI (-4.4B):

• Fixed investment (+$2.3B). Gains in nonresidential investment (+$1.4B) were led by structures (+$6.2B) but largely offset by equipment (-$2.8B) and intellectual property products (-$3.3B). Residential fixed investment was revised by +$0.8B.
• Inventories (-$6.1B). Nonfarm inventories (-$5.5B) led the drop in this category.

NetX (+$4.7B):

• Exports (-$3.4B). Services (-$3.4B) led the downward revision in this category.
• Imports (-$8.2B). Here, too, services (-$6.9B) dominated. Because imports are a subtraction in the calculation of GDP, the downward revision nudged NetX up relative to 3Qv2.

GCE (+$2.5B):

• Federal (+$0.9B). National defense consumption expenditures (+$0.4B) led this category.
• State and local (+$1.9B). Gross investment (+$1.9B) dominated here.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.60% (-0.16PP from 3Qv2), a level 1.54PP above the 2Q2023 estimate. QoQ growth in gross domestic income, by contrast, was unchanged at a less “zippy” +1.5%, up from +0.5% in 1&2Q2023.

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“Nothing here was sufficient to change the economy’s overall trajectory nor the expectation that growth slowed in the fourth quarter,” said chief economist Joshua Shapiro of MFR Inc.

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.

3Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 3Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised the growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +5.16% (+4.9% expected), up 0.29 percentage point (PP) from the “advance” estimate (“3Qv1”) and +3.10PP from 2Q2023.

As with 3Qv1, 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 3Q percent-change headline. Net exports (NetX) detracted from it. The 3Qv2 update reflected “upward revisions to nonresidential fixed investment and state and local government spending that were partly offset by a downward revision to consumer spending,” the BEA wrote, adding, “Imports, which are a subtraction in the calculation of GDP, were revised down.”

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As for details (billions of chained 2017 dollars; all relative to 3Qv1) --

PCE (-$14.7B):

• Goods (-$1.4B). Spending on durable goods retreated ($3.9B), led by motor vehicles and parts (-$3.3B).
• Services (-$13.1B). Household consumption expenditures fell ($10.6B), led by a combination of financial services and insurance (-$6.7B) and other services (-$4.5B)

PDI (+$19.4B):

• Fixed investment (+$15.3B). Gains in nonresidential investment (+$11.0B) were led by structures (+$8.0B). Residential fixed investment was revised by +$4.1B.
• Inventories (+$3.3B). Nonfarm inventories (+$2.9B) led the gain in this category.

NetX (+$2.3B):

• Exports (-$1.6B). Services (-$1.9B) led the downward revision in this category.
• Imports (-$3.7B). Here, too, services (-$4.2B) dominated. Because imports are a subtraction in the calculation of GDP, the downward revision boosted NetX relative to 3Qv1.

GCE (+$8.3B):

• Federal (+$2.9B). Nondefense consumption expenditures (+$2.5B) led this category.
• State and local (+$5.5B). Gross investment (+$5.2B) dominated.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.76% (+0.21PP from 3Qv1), a level 1.70PP above the 2Q2023 estimate. QoQ growth in gross domestic income, by contrast, was reported to be a less “zippy” +1.5%, up from +0.5% in 1&2Q2023.

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“Evidence of economic strength over the summer could mislead some to assume the economy is on a strong trajectory — it is not,” said chief economist Gregory Daco of EY Parthenon.

“Nothing [in this report] was sufficient to change the economy’s overall trajectory nor the expectation that growth will slow significantly in the fourth quarter,” added chief economist Joshua Shapiro of MFR Inc.

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.

3Q2023 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 3Q2023 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +4.87% (+4.2% expected), up 2.81 percentage points (PP) from 2Q2023’s +2.06%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 3Q2023 was 2.93% higher than in 3Q2022; that growth rate was faster (+0.55PP) than 2Q2023’s +2.38% relative to 2Q2022.

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 3Q percent-change headline. Net exports (NetX) detracted from it.

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As for details (billions of chained 2017 dollars; all comparisons to 2Q2023) --

PCE (+$150.6B):

* Goods (+$63.1B). Spending on durable goods rose (+$37.5B), led by recreational goods and vehicles (+$28.5B). Growth in spending on nondurable goods showed respectable momentum (+$26.9B), led by other nondurable goods (+$22.7B); gasoline and other energy goods fell (-$6.2B).

* Services (+$88.6B). Gains were led by housing and utilities (+$22.4B), followed closely by health care (+$19.6B).

PDI (+$82.0B):

* Fixed investment (+7.8B). This increase was concentrated in intellectual property products (+$9.0B) and residential investment (+$6.9B); equipment (-$12.2B) partially offset the rest of fixed investment.

* Inventories (+$65.7B). Nonfarm inventories expanded (+$66.3B); farm: -$0.2B.

NetX (-$9.5B):

* Exports (+$37.6B). Goods exports rose by $30.4B; services: +$7.4B.

* Imports (+$47.0B). Goods imports increased by $40.3B; services: +$6.9B. Recall that the net change in imports is inversely related to the change in the GDP headline.

GCE (+42.8B): State and local consumption expenditures (+$12.4B) led this category; federal defense consumption expenditures: +$12.0B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories, was +3.55% (up 1.49PP from 2Q).

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Looking ahead, one should not expect this stellar performance to repeat. “While this number is unsurprising, our expectations are for slower GDP going forward as positive contributions from volatile net exports and inventories are unlikely to be repeated,” wrote Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management. “While this one number makes the Fed weary of cutting rates, it does not move the needle for the November FOMC meeting which is certainly a skip. Higher and hold, yes. Higher and hiking, no.”

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.

2Q2023 Gross Domestic Product: Third Estimate

 

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In its third estimate of 2Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) left the headline growth rate of the U.S. economy essentially unchanged at a seasonally adjusted and annualized rate (SAAR) of +2.06% (+2.3% expected), down 0.01 percentage point (PP) from the second estimate (“2Qv2”) and -0.19PP from 1Q2023.

Although the 2Qv3 headline number was practically identical to 2Qv2, the underlying components shifted around quite noticeably. In 2Qv1 and 2Qv2, three groupings of GDP components -- personal consumption expenditures (PCE), net exports (NetX), and government consumption expenditures (GCE) -- had contributed positively to the headline while private domestic investment (PDI) detracted from it. In 2Qv3, by contrast, all four components contributed positively to the headline -- although the contribution of PCE was cut in half, PDI was increased by over 50%, NetX was revised marginally positive, and GCE was left nearly unchanged.

There were several reasons for these outsized revisions:

• Current-dollar (i.e., nominal) measures of GDP and related components were revised from 1Q2013 through 1Q2023.
• GDI and selected income components were revised from 1Q1979 through 1Q2023.
• The reference year for chain-type quantity and price indexes and for the chain-dollar estimates was updated to 2017 from 2012. The change in reference year modified quarterly real GDP estimates back to 1947, the first of year in which quarterly estimates are available.

After accounting for all the revisions, “the updated estimates show that real GDP increased at an average annual rate of 2.2% from 2017 to 2022, 0.1PP higher than the previously published estimate,” the BEA reported. 

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Given the degree of changes to the historical data, comparing this 2Qv3 report to either prior same-quarter estimates or prior quarters seems a “fool’s errand.” Nonetheless, it appears the main takeaway is that the consumer was far weaker in 2Q than previously portrayed.

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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.

2Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 2Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised the growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +2.07% (+2.4% expected), down 0.35 percentage point (PP) from the “advance” estimate (“2Qv1”) but +0.07PP from 1Q2023.

As with 2Qv1, 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. The 2Qv2 update “primarily reflected downward revisions to private inventory investment and nonresidential fixed investment that were partly offset by an upward revision to state and local government spending,” the BEA wrote.

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As for details (all relative to 2Qv1):

PCE. Consumer spending was revised up by $1.1 billion (chained-2012 dollars), led by spending on services (+$1.6B) -- positive contributions primarily concentrated among food services and accommodations (+$4.3B), transportation services (+$3.6B), and the imputed value of final consumption expenditures of nonprofit institutions (+$3.6B). That gain was partially offset by a -$0.9B revision to goods spending -- especially motor vehicles and parts (-$3.8B), and gasoline and other energy goods (-$2.6B).

PDI. PDI was revised down by $20.8B, led by a drop (-$11.0B) in nonfarm inventories. Fixed investment was also revised lower (-$8.8B), led by equipment (particularly, information processing equipment: -$8.1B); residential investment was boosted by +$0.8B.

NetX. Upward revisions to imports (+$7.8B) -- which are a subtraction in the calculation of GDP -- more than offset the change in exports (+$1.1B).

GCE. Revisions to state and local gross investment (+$6.7B) dominated this category.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +2.16% (-0.12PP from 2Qv1), a level 1.98PP below the 1Q2023 estimate. 

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“Fewer economists think a recession is imminent than was the case as recently as the spring,” wrote MarketWatch’s Jeffry Bartash. Even so, Bartash inserted a note of caution from PNC Financial Services’ Gus Faucher, who observed, “Weaker growth in real gross domestic income [+0.5%], relative to GDP, may be an indication that tighter monetary policy is weighing on the U.S. economy.”

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.

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.

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.

1Q2023 Gross Domestic Product: Second Estimate

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In its second estimate of 1Q2023 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised the growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +1.27% (+1.1% expected), up 0.21 percentage point (PP) from the “advance” estimate (“1Qv1”) but -1.29PP from 4Q2022.

As with 1Qv1, two groupings of GDP components -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) -- contributed positively to the headline; also, private domestic investment (PDI) detracted from it. However, whereas net exports (NetX) had also contributed positively to the 1Qv1 headline, it was neutral in 1Qv2. The 1Qv2 increase in real GDP “reflected increases in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment,” the BEA said. “Imports, which are a subtraction in the calculation of GDP, increased.”

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As for details (all relative to 1Qv1):

PCE. Consumer spending was revised up by $2.1 billion (chained-2012 dollars), led by spending on services (+$3.8B) -- primarily health care (+$11.3B). That gain was partially offset by a -$2.1B revision to goods spending -- especially food and beverages (-$1.3B) and motor vehicles and parts (-$1.1B).

PDI. Fixed investment was revised up by $10.2B, led by software (+$7.4B); residential investment was trimmed by -$1.8B. Private inventories were boosted by +$8.5B -- especially nonfarm (+$8.0B).

NetX. Upward revisions to exports (+$2.1B) were more than offset by a boost to imports (+$9.6B).

GCE. Revisions to state and local gross investment (+$4.6B) dominated this category.

The BEA’s change in real final sales of domestic product -- which ignores inventories -- was revised to +3.37% (+0.05PP from 1Qv1), a level 2.28PP above the 4Q2022 estimate. 

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Looking forward, many economists think a recession is inevitable by the end of the year. They view the seeming green shoots in April (e.g., April’s CFNAI) as a feint, pointing to softer consumer spending, waning business investment and the slumping housing and manufacturing industries.

“The march to recession continues, with some rest stops along the way,” said TS Lombard’s Steve Blitz.

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.

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.

4Q2022 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2022 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 +2.56% (+2.7% expected), down 0.12 percentage point (PP) from the second estimate (“4Qv2”) and -0.69PP from 3Q2022.

As with prior 4Q reports, 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 headline. The updated estimates primarily reflected downward revisions to exports and consumer spending. Imports, which are a subtraction in the calculation of GDP, were revised down -- resulting in a larger contribution to the headline.

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As for details (all relative to 4Qv2):

PCE. The downward revision to consumer spending (-$11.9 billion, chained 2012 dollars) was led by services (-$16.7B). Final consumption expenditures of nonprofit institutions serving households (-$8.7B), financial services and insurance (-$6.6B), and other services (-$4.6B) dominated the services category. Upward revisions to spending on goods (+$6.7B) were concentrated primarily among recreational goods and vehicles (+$1.9B) and other nondurable goods (+$1.6B).

PDI. Upward revisions to nonresidential structures (+$7.2B) and residential fixed investment (+$1.4B) were partially offset by erosion in intellectual property products (-$3.7B). Private inventories were little changed (+$0.2B)

NetX. Exports were revised lower (-$13.8B), along with imports (-$13.5B). The net effect was a marginal reduction in this category’s contribution to the headline.

GCE. Upward revisions to state and local gross investment (+$1.1B) dominated this category; federal direct expenditures were little changed (-$0.2B).

Given that the contribution of private inventories to the headline was essentially unchanged, growth in real final sales of domestic product was revised down to +1.09% (-0.12PP from 4Qv2 and -3.35PP below 3Q). The pseudonymous New Deal Democrat considers this data point to be indicative of a pending recession.

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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.