The Q2 US GDP report – just terrible
Bureau of Economic Analysis today reported that real gross domestic product in the US increased at an annual rate of 1.3% in the second quarter of 2011. This (newly revised – see below) acceleration in real GDP was driven primarily by a slowdown in import demand, stronger federal spending, and a pickup in non-residential fixed investment. Real gross domestic purchases – GDP minus net exports – was weaker than the headline, increasing 0.7% on the quarter, reflecting the positive contribution from external demand. Domestic demand is barely growing – remember these are annualized rates, not q.q rates.
READ MORE AFTER THE JUMP!
Below the hood, the pace of personal consumption expenditures slowed markedly, +0.1% in the second quarter compared to +2.1% in the first. Some of the drag to consumption will bounce back in the third quarter, as auto sales and the supply chain disruptions dissipate – durable goods decreased 4.4% over the quarter. On the bright side, real nonresidential fixed investment picked up 6.3% in the second quarter and tripling the pace seen in the first. Real net exports contributed a large 0.58% to the headline growth number, as real exports maintained a healthy pace and imports decelerated over the quarter.
Overall, I think that the story is pretty consistent with the details of the labor market: the economy is improving, but domestic demand is very weak.The US economy is increasingly likely to enter a ‘growth recession’ – sub-potential growth – in 2011. And as David Altig highlights, a growth recession is generally associated with an economic contraction.
On the revisions
The drop in Q1 2011 growth to 0.4% was certainly not expected. Much of it was due to a reclassification of domestic inventory build (adds to GDP) to imports (subtracts from GDP). But there’s a lot more.
Today’s estimates reflect the annual revisions of the US national accounts. The revisions date back to 2003, which show a deeper recession and a quicker rebound. We now know that GDP bottomed in the second quarter of 2009, after having fallen 5.1% since the fourth quarter of 2007. Previously, the cumulative drop in GDP was 4.1%. The recovery through Q1 2011 was slightly faster, 4.9% in the pre-revised data compared to 4.64% in the revised series. (Rdan….4.9% is correct figure)
(Rdan: revised chart to correct calculation error…8/1)
Broadly speaking, though, the revisions show that economic momentum is petering out on a 6-month/6-month annualized basis. In sum, nominal spending on consumption goods and services was revised downward by 307.8 billion dollars spanning the years 2008-2010, and nominal fixed investment spending dropped by 83.9 billion dollars compared to previous estimates. Government spending is proving to be less of a drag than previously thought (in nominal terms), having been revised 5 billion dollars higher compared to previous estimates over the same period.
On balance, the expected 2011 growth trajectory will struggle to top 2%, as a rather positive 2H 2011 of 3.0% and 3.5% in Q3 and Q4, respectively, would imply a 1.9% Y/Y pace for 2011 as a while. I seriously doubt we’ll get that trajectory in H2 2011 – we’ll have to see what economists now forecast – but the downside risk to the economy is pervasive. It’s not just Japan.
Rebecca Wilder
Mark is Zero…Dude!
Good job, sorry I’ve been tied up and have not been able to report on the revisions.
One important point is that the new data closes the gap between national income and GDP. National income and GDP are suppose to be equal as they are just two different measurements of the same thing–
what we produce and what income is generated by that production.
The gap had been significant and the several analysts had been pointing out that the income data implied that GDP was overstating growth. It implies that from now on we should pay more attention to the income data.
Second, the original data showed that real GDP was now above the previous peak. Now it shows that we are still well below the previous peak so the excess capacity is greater than we thought.
The deeper recession implies that some of the reported productivity growth will be revised down, but I do not think the impact will be that big. The downward revision will just make a big difference in about one year of the reported productivity gains.
The other interesting point to come out of the data revision is that it shows the recession to have been more severe than we thought but it also tends to show that the stimulus program coincided exactly with the bottoming of the economy and the bounce back from the bottom.
In other words it now looks like the stimulus worked better than we thought.
Interestingly the current economic weakening exactly coincides with fiscal policy tightening, exactly what Keynesian economics would imply.
ran into a post on that from mike mandel, spencer: Productivity “Surge” of 2007-09 melts away in new data
I read the latest report. While it explained that the revised estimates are based on the annual revision of the national income and product accounts (NIPAs), it didn’t provide an explanation of the revisions or major changes from the June 24 report. It’s a little hard to believe that the revisions for Qtr 1, 2011 could be that large unless the May and June BEA reports were that screwed up. BEA buried all of the prior quarter data changes under it multiyear NIPAs change. The prior quarter data has been swept under the rug without a considerable discussion by BEA.
BEA News Release, Thursday, May 26, 2011:
and with tables:
“Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.8 percent in the first quarter of 2011, (that is, from the fourth quarter to the first quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.1 percent.”
BEA News Release, Friday, June 24, 2011:
and with tables:
“Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.9 percent in the first quarter of 2011, (that is, from the fourth quarter to the first quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.1 percent.”
BEA News Release, Friday, July 29, 2011:
and with tables:
“Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent.”
BEA 11-38, JULY 29, 2011
BEA REVISIONS, PART 1
Table 1A. Real Gross Domestic Product and Related Measures: Percent Change From Preceding Period
Seasonally adjusted at annual rates
2010 2011
I II III IV I
Gross domestic product (GDP)……………… 3.9 3.8 2.5 2.3 0.4
Previously published ……………………….. 3.7 1.7 2.6 3.1 1.9
Personal consumption expenditures ……… 2.7 2.9 2.6 3.6 2.1
Previously published ……………………….. 1.9 2.2 2.4 4.0 2.2
Goods………………………………………….. 6.4 3.8 4.8 8.3 4.7
Previously published ……………………… 5.7 3.4 4.1 9.3 3.9
Durable goods……………………………… 9.9 7.8 8.8 17.2 11.7
Previously published ……………………. 8.8 6.8 7.6 21.1 9.3
Nondurable goods ………………………… 4.8 1.9 3.0 4.3 1.6
Previously published ……………………. 4.2 1.9 2.5 4.1 1.4
Services ………………………………………. 1.0 2.5 1.6 1.3 0.8
Previously published […]
BEA 11-38, JULY 29, 2011
BEA REVISIONS, PART 2
Table 1A. Real Gross Domestic Product and Related Measures: Percent Change From Preceding Period
Seasonally adjusted at annual rates
2010 2011
I II III IV I
Government consumption expenditures
and gross investment……………………… –1.2 3.7 1.0 –2.8 –5.9
Previously published …………………….. –1.6 3.9 3.9 –1.7 –5.8
Federal ………………………………………. 2.8 8.8 3.2 –3.0 –9.4
Previously published …………………….. 1.8 9.1 8.8 –0.3 –8.1
National defense …………………………. 0.5 6.0 5.7 –5.9 –12.6
Previously published …………………… 0.4 7.4 8.5 –2.2 –11.8
Nondefense………………………………… 7.8 14.7 –1.8 3.1 –2.7
Previously published …………………… 5.0 12.8 9.5 3.7 0.0
State and local ……………………………. –3.9 0.4 –0.5 –2.7 –3.4
Previously published …………………… –3.8 0.6 0.7 –2.6 –4.2
Addenda:
Final sales of domestic product……………. 0.8 3.0 1.7 4.2 0.0
Previously published ………………………. 1.1 0.9 0.9 6.7 0.6
Gross domestic purchases………………….. […]
Compare the BEA highlights of the 1st and 2nd quarters, Part 2:
BEA News Release, Friday, June 24, 2011:
Real federal government consumption expenditures and gross investment decreased 8.1 percent in the first quarter, compared with a decrease of 0.3 percent in the fourth. National defense decreased 11.8 percent, compared with a decrease of 2.2 percent. Nondefense was unchanged, after an increase of 3.7 percent. Real state and local government consumption expenditures and gross investment decreased 4.2 percent, compared with a decrease of 2.6 percent.
BEA News Release, Friday, July 29, 2011:
Real federal government consumption expenditures and gross investment increased 2.2 percent in the second quarter, in contrast to a decrease of 9.4 percent in the first. National defense increased 7.3 percent, in contrast to a decrease of 12.6 percent. Nondefense decreased 7.3 percent, compared with a decrease of 2.7 percent. Real state and local government consumption expenditures and gross investment decreased 3.4 percent, the same decrease as in the first.
—–
BEA News Release, Friday, June 24, 2011:
The change in real private inventories added 1.31 percentage points to the first-quarter change in real GDP, after subtracting 3.42 percentage points from the fourth-quarter change. Private businesses increased inventories $55.7 billion in the first quarter, following increases of $16.2 billion in the fourth quarter and $121.4 billion in the third.
BEA News Release, Friday, July 29, 2011:
The change in real private inventories added 0.18 percentage point to the second-quarter change in real GDP after adding 0.32 percentage point to the first-quarter change. Private businesses increased inventories $49.6 billion in the second quarter, following increases of $49.1 billion in the first quarter and $38.3 billion in the fourth.
—–
BEA News Release, Friday, June 24, 2011:
Real final sales of domestic product — GDP less change in private inventories — increased 0.6 percent in the first quarter, compared with an increase of 6.7 percent in the fourth.
BEA News Release, Friday, July 29, 2011:
Real final sales of domestic product — GDP less change in private inventories — increased 1.1 percent in the second quarter, after increasing less than 0.1 percent.
—–
BEA News Release, Friday, June 24, 2011:
Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — increased 1.7 percent in the first quarter, in contrast to a decrease of 0.2 percent in the fourth.
BEA News Release, Friday, July 29, 2011:
Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — increased 0.7 percent in the second quarter, the same increase as in the first.
—–
BEA News Release, Friday, June 24, 2011:
Real gross national product — the goods and services produced by the labor and property supplied by U.S. residents — increased 3.4 percent in the first quarter, compared with an increase of 2.8 percent in the fourth. GNP includes, and GDP excludes, net receipts of income from the rest of the world, which increased $51.1 billion in the first quarter after decreasing $10.5 billion in the fourth; in the first quarter, receipts increased $14.2 billion, and payments decreased $36.8 billion.
BEA News Release, Friday, July 29, 2011:
[nothing]
—–
BEA News Release, Friday, June 24, 2011:
[nothing]
BEA News Release, Friday, July 29, 2011:
Current-dollar personal income increased $132.5 billion (4.2 percent) in the second quarter, compared with an increase of $251.9 billion (8.3 percent) in the first.
Personal current taxes increased […]
Hi Spencer,
this is a point (about the stimulus) that I hadn’t read out there. I actually did notice this, but failed to recognize the implications while sifting through the massive report. I wonder what they think in Washington will happen as the government tightens – the debt ceiling debate is circling around more rather than less shorter term countercyclical policy.
I remember reading that the spending side of GDP is shown to be the more useful side in measuring domestic activity at a higher frequency, given the limitations in data on the income side. I’ve said for some time that during a deleveraging cycle income is more important. And wages are the most important – the income stream is stopping with corporate profits, barely making its way to wages and salaries (in the aggregate). I wrote about this a couple of months ago here on Angry Bear (link here).
Rebecca
MG,
It is suspect that just one month later (third estimate of Q1 GDP here) the BEA slashed its third and final release from 1.9% SAAR to .4%. Seriously, how do I truly attach any significance in the Q2 release?
Rebecca
MG.
I find this interesting – and the reason that I had to delete some words in the first paragraph of the original post. Read your data that you uploaded here:
Gross domestic purchases………………….. 4.8 5.6 3.1 0.9 0.7
Previously published ………………………. 3.9 5.1 4.2 –0.2 1.7
Gross domstic purchases apparently grew 0.9% in Q4 2010 and then 0.7% in Q1 2011.
But read (which is where I originally got my information) the sentence of the release that highlights gross domestic purchase:
BTW: I have no control over the formatting here with echo – but the last two lines are my own text, which took the same html format as in the BEA release.
Rebecca
A simple question. If the statistics provided are revised repeatedly how significant is that data? I don’t see (maybe I’m not looking in the right place) any measure of error. In effect, what conclusions can or should be drawn from all those numbers?
Rebecca,
I saw that. How does BEA explain that one?
Rebecca,
The new GDP measure for Q1 is roughly 20% of the third estimate (June). And we’re supposed to believe that? Without asking any questions?
A friend (an economist who studies the BEA releases) and I reviewed some of the tables line by line last night. What jumped out at us was the lack of consistent change being applied. Some of the Q4 and Q1 changes look out of place in comparison to the other Q changes. He was disgusted by the time we finished.
What is the problem with the import data? I don’t understand some of the large changes. Are the changes strictly dollar valuation changes as opposed to volume changes? Again, no consistency in the quarterly changes.
I could go on, but there will be plenty of “justifications” by BEA and others for the large swings in reported data. Those who don’t fall in line will be thrown out of the BEA church or burned at the stake.
The question that will stick in my mind is whether the various survey results are valid measures. If BEA is not at fault, then the problem (if one exists) appears to shift to the surveys.
I know that the BEA economists are very good, but something stinks in Denmark. No doubt I will burned at the stake. Here, use my Zippo from my days in southern Germany.
It’s interesting that this main post drew few thread participants.
Five years ago, this would have been a hot comment thread. It’s more than apparent that the AB readership has changed.
Dan, good luck bringing back active participants who are genuinely interested in macro economic issues. I suggest more articles like this one, written by smart economists.