In their first estimate of the US GDP for the third quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +1.49% annualized rate, down -2.43% from the second quarter.
This report included significant changes in the details as well as the headline. By far the greatest quarter-over-quarter change was in inventories, which subtracted -1.44% from the headline after being essentially neutral during the prior quarter. As we have mentioned before, the BEA’s treatment of inventories can introduce noise and seriously distort the headline number over short terms — which the BEA admits by also publishing a secondary headline that excludes the impact of inventories. This BEA “bottom line” (their “Real Final Sales of Domestic Product”) reported a much more respectable +2.93% growth rate for the third quarter.
Consumer activity once again contributed the bulk of the headline number (providing +2.19% in total), although that contribution was less than during the prior quarter (down -0.24% in aggregate). Fixed commercial investments, governmental spending and exports also weakened materially, while imports subtracted less from the headline than during the prior quarter.
Meanwhile there was better news for household income. Real annualized per capita disposable income was reported to be $38,086 per annum, up $251 per year from the prior quarter. The household savings rate was reported to be 4.7% — up slightly from the prior quarter’s 4.6% rate.
For this revision the BEA assumed an annualized deflator of 1.22%. During the same quarter (July 2015 through September 2015) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was negative (dis-inflationary), at -0.37%. Over estimating inflation results in pessimistic growth rates, and if the BEA’s “nominal” data was deflated using CPI-U inflation information the headline number would show a much better +3.10% growth rate.
Among the notable items in the report :
— The headline contribution from consumer expenditures for goods was +0.99% (down -0.21% from the prior quarter).
— The contribution to the headline from consumer services also weakened slightly to +1.20% (down -0.03% from the second quarter). The combined consumer contribution to the headline number was +2.19%, down -0.24% from 2Q-2015.
— The headline contribution from commercial private fixed investments essentially halved, dropping to +0.47% — down -0.36% from prior quarter. Spending on non-residential structures contracted while the growth rate for residential structures weakened.
— As mentioned above, inventories contracted materially — subtracting -1.44% from the headline number. As mentioned below, we suggest that this number should be largely ignored.
— Governmental spending added +0.30% to the headline (down -0.16% from the prior quarter). The remaining growth was almost entirely in state and local spending.
— The contribution to the headline number from exports (+0.24%) was less than half of the number from the prior quarter (down -0.40% from the +0.64% for 2Q-2015).
— Imports subtracted less from the headline number (-0.27%) than during the previous quarter (a change of +0.19%).
— The “real final sales of domestic product” is now reported to be growing at a +2.93% annualized rate, off only -0.97% from the very respectable +3.90% recorded for last quarter. Once again, this is the BEA’s “bottom line” measurement of the economy and it excludes the reported inventory contraction.
— Also as mentioned above, real per-capita annual disposable income was reported to have grown materially during the quarter and the household savings rate also improved slightly. However, this admittedly good news should be read in the context of a real per-capita annual disposable income that is up only +3.84% in aggregate since the second quarter of 2008 — a meager annualized +0.52% growth rate over the past 29 quarters.
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