In their second estimate of the US GDP for the first quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was contracting at a -0.75% annualized rate, down a full percent from the +0.25% estimated last month, and down sharply (-2.97%) from the +2.22% growth rate recorded for the prior quarter. And according to the “real final sales of domestic product” (BEA’s very own “bottom line” for the economy), the economy shrank at more than a percent (-1.08%) during the quarter, down -3.40% from last quarter’s +2.32%.
A look at the details provides little comfort. The already anemic consumer spending on goods improved a smidgen to +0.10% annualized growth, and fixed commercial investment also improved — although only to a “less bad” contraction rate of -0.21% (from -0.40%). All other changes made the report awash with red: imports were revised downward significantly (a -0.58% decline), inventory growth was weaker by -0.41%, consumer spending on services dropped -0.13%, government spending was -0.05% lower and the contribution from exports declined -0.07%.
Real annualized per capita disposable income was also revised downward by -$25 (now reported to be $38,210 per annum). Meanwhile, the household savings rate was unchanged at 5.5% (the highest rate since the fourth quarter of 2012), which accounts to a large extent for the continued sluggish consumer spending.
For this report the BEA assumed a mild dis-inflationary annualized deflator of -0.12%. Interestingly, during the same quarter the far more responsive Billion Prices Project (BPP) recorded mild positive inflation. If the BPP inflation metric was used to deflate the nominal BEA data the economy could be shown to be contracting at a more than -2.69% annualized rate.
Among the notable items in the report :
— The headline contribution from consumer expenditures for goods was +0.10% (down -0.97% from the prior quarter).
— The contribution to the headline from consumer services spending decreased to +1.13% (down -0.78% from the previous quarter). Healthcare spending alone provided +0.60% to the headline number. The combined consumer contribution to the headline number was 1.23%, down -1.75% from the prior quarter.
— Contracting commercial private fixed investments removed -0.21% from the headline number — down nearly a full percent (-0.93%) from the fourth quarter of 2014. This drop occurred in spending for structures, industrial equipment and IT equipment. Some growth was reported in transportation equipment and intellectual property.
— Inventory growth added +0.33% to the headline number (up +0.43% from the previous quarter). Once again it is important to note that this number has logically and historically been nearly zero-sum over extended time periods, and future mean reversion to the zero sum should be expected.
— Governmental spending removed -0.20% from the headline (up +0.15% from the -0.35% for the previous quarter). The remaining contraction was largely the result of decreased state and local spending on infrastructure.
— Exports are suffering from the strong dollar, and are now reported to be subtracting -1.03% from the headline growth rate (down -1.62% from the previous quarter).
— Imports subtracted substantially less from the headline number (-0.87%) than during the prior quarter (-1.62%) — also an expected consequence of the stronger dollar.
— The “real final sales of domestic product” is now contracting at a -1.08% annualized rate. This is the BEA’s “bottom line” measurement of the economy and it excludes the reported inventory growth.
— And as mentioned above, real per-capita annual was revised downward in this report, but it is still up $432 per year quarter-to-quarter. The new number represents an annualized growth rate of +4.65%. But it is up only +4.18% in aggregate since the second quarter of 2008 — an annualized +0.61% growth over the past 26 quarters. The reported softening growth in consumer spending is a consequence of a significant increase in household savings — i.e., most of that $432 quarter-to-quarter growth went into savings.
