First-quarter GDP was lower than any estimate in the Bloomberg Econoday consensus range of of 1.7 percent to 2.8 percent. Inflation was higher than expected.
Chart Notes
- Gross Domestic Product (GDP) and Gross Domestic Income (GDI) are two measures of the same thing. Product produced should match sales and income. They do over time, but this is a large ongoing discrepancy.
- Real Final Sales is the bottom line estimate of GDP. The difference between GDP and Real Final Sales is inventory adjustment which nets to zero over time.
- Real means Inflation adjusted using the GDP deflator as calculated by the BEA as the adjustment.
Advance GDP 2024 Q1
Real gross domestic product (GDP) increased at an annual rate of 1.6 percent in the first quarter of 2024, according to the “advance” estimate released by the Bureau of Economic Analysis.
- 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 increase in consumer spending reflected an increase in services that was partly offset by a decrease in goods. Within services, the increase primarily reflected increases in health care as well as financial services and insurance. Within goods, the decrease primarily reflected decreases in motor vehicles and parts as well as gasoline and other energy goods.
- Within residential fixed investment, the increase was led by brokers’ commissions and other ownership transfer costs as well as new single-family housing construction. The increase in nonresidential fixed investment mainly reflected an increase in intellectual property products.
- The increase in state and local government spending reflected an increase in compensation of state and local government employees.
- The decrease in inventory investment primarily reflected decreases in wholesale trade and manufacturing. Within imports, the increase reflected increases in both goods and services.
Understanding Imports
The BEA says “Imports, which are a subtraction in the calculation of GDP, increased.”
That statement is inaccurate. Imports do not change GDP given the “D” stands for “Domestic” and imports are not domestic.
However, the BEA needs to subtract exports because procedures are such that imports are included in sales when they they shouldn’t be,
Price Indexes
- The price index for gross domestic purchases increased 3.1 percent in the first quarter, compared with an increase of 1.9 percent in the fourth quarter.
- The personal consumption expenditures (PCE) price index increased 3.4 percent, compared with an increase of 1.8 percent.
- Excluding food and energy prices, the PCE price index increased 3.7 percent, compared with an increase of 2.0 percent.
If the measures of inflation are understated, then Real GDP and GDI are overstated.
Compared to expectations, this was a miserable report. One can see it in bond yields (up) and the stock market (down).
Bond Yields
- 10-year: 4.73%, up 8 basis points (.08 percentage points)
- 30-year: 4.84%, up 6 basis points
- 2-year: 5.02% up 8 basis points
Growth underperformed while inflation was higher than expected.
“If the measures of inflation are understated, then Real GDP and GDI are overstated.”
Price indices, such as the CPI, not used for calculating real GDP.
In the US, real GDP is calculated using chained linking of prices.
Yes, the GDP uses the GDP deflator.
The same applies.
Is it over or understated.
But the GDP report does cover PCE which is why I mentioned it.
“The price index for gross domestic purchases increased 3.1 percent in the first quarter, compared with
an increase of 1.9 percent in the fourth quarter (table 4). The personal consumption expenditures (PCE)
price index increased 3.4 percent, compared with an increase of 1.8 percent. Excluding food and energy
prices, the PCE price index increased 3.7 percent, compared with an increase of 2.0 percent.”
The GDP deflator was hot too.
In fact, I mentioned just that. My three bullet points were from the BEA.
OK, so you brought the hide/ignore function back.
Now I want to see a list the ID’s of who voted up/down as is done in other systems like Disqus.
I suspect Mish reported the GDP deflator accurately, but the deflator itself is garbage. Disconnected bureaucrats (they get a pay raise even when they mess up, and they can never be fired, so they just dont care) using questionable formulas designed by politicians and political appointees. Hedonic adjustment sounds reasonable in theory, but in implementation it is fraud.
Anyone who does their own grocery shopping, pays their own health deductibles, buys their own gasoline, pays for their own heating oil / natural gas, pays for their own electricity… this 3% inflation stuff is just stupid. The correct inflation number is about double that. Yes, that means GDP is essentially flat or zero real growth (slightly negative?). Also known as stagflation.
I assume the technocrats are “just following orders”, but that doesn’t excuse them. Its lies and they know it.
What matters the most is comparability. The numbers can be off, and they pretty much always will be to some degree, but if the magnitude of the errors and the relationships among them don’t change then it’s not as much of a worry as you think it is.
About 35 years ago, I was in a discussion with one of your hated economists (corporate, not government), and he pointed this out when I was complaining about inaccurate federal economic statistics.
Of course we all want accurate data. You do, and so do I, and so does Mish. What the professionals do is adjust them. I do and Mish does. Not sure about you. When methodological changes do get made (and they certainly do), one challenge is to backdate those changes so future numbers are backwards compatible.
All of this is unsatisfying for sure, especially for purists like yourself. This isn’t nearly as much of a defense of inaccuracy as it might seem, but just a reminder that sheer accuracy isn’t necessarily, by itself, the end all and be all. It is more complicated than that, and simpler too. Welcome to the real world.
Do people make substitutions as prices rise, aka hedonic adjustments? Sure we do. I make my Manhattans with Wild Turkey 101 rye instead of brands that cost two or three times as much. I switched brands of cherries, and the new ones cost about 30% of what the old ones did.
I drive 5 mph below the speed limit on the highway rather than 7 mph above, and get 25% better gas mileage than I used to. I make my own bread for 70 cents a loaf rather than spend $4 at the store. Oh, and I get the flour at a wholesale outlet in 50 pound sacks, which cut the price by 20% from what the grocery store gets.
All of these are recent changes, and there will be more over time. I like the homemade bread a lot more than store bought, and actually enjoy the slow lane more than driving in the fast lane. I popped for a bottle of high priced rye the other day just to see, and I could not tell the difference.
I don’t know the extent of hedonic adjustments in the deflator. If it was very much, it would be a problem. Do you know how much it is? In any case, your assertion that inflation is 6% rather than 3% has no basis that I can tell. Stamping your feet, waving your hand, and doubling the number isn’t too persuasive. Be real.
If people don’t trust the basic number, it is irrelevant how you think it compares to the previous made up number.
Trust and credibility come before your overly specific personal story buying 50lb sacks of flour
You know nothing.
Typical academic. You are powerless without the ability to threaten my grades, so you resort to childish insults
You may refuse to recognize it, but your standard of living is dropping and you are forced to compensate.
GDP=C+I+G+(X−M)
Imports shouldn’t be subtracted from GDP? This page is becoming increasingly useless.
AIER is a bunch of academics. No doubt their formula is “correct” (since they made it), but it is meaningless from a practical sense.
Net exports has become somewhat meaningless. If GM makes engine parts, exports them to Canada for assembly, and the finished product (assembled engine) returns (and being assembled has a higher economic value), that shows in government stats as a net import.
Honda and Toyota make engines in Japan, but their cars for North America are “made” in Kentucky and Tennessee? So the engines are imports, but the cars are not. They might even be exports if delivered to Canada. But the profits get sent back to Japan, and get counted as negative income (the income is transferred to Japan).
Government payments of interest on debt should really be subtracted from GDP, otherwise the GDP formula makes massive net debtors appear much better off than they are. Academics will complain about that, as they raise tuition 2-3x CPI and encourage students to take out massive debts to attend
You didn’t read what he wrote. Try again.
90% of academic “research” never gets read. Often the so-called peer reviewers don’t even read it. Publish or perish has forced academics to emphasize quantity over quality… and then raise tuition 2-3 times as fast as CPI, all the while claiming these price increases are deflation.
Very good article here on DP and government spending in the calculation:
Don’t worry about the accelerating decline in GDP growth. Janet said the economy “is firing on all cylinders”.
Academics opining about the real world.
Her mentor was the one who told us the subprime contagion appears well contained.
Those who can do, those who can’t teach, and those who can’t teach work in government agencies
The rich folks will blame Biden and all the regulations and increases in cost which have also resulted in increases in pay for middle class workers. It turns out one person’s cost is another person’s income. Businesses keep saying their cost is going up and that’s the reason for their price hike but many large businesses are seeing all time highs in their stock price and profit margins. The truth is the pressure to keep up profit margins to please investors is causing as much inflation as anything else. Corporations are greedy and never passed on savings even in low inflation times. Now they are greedier than ever. That greed has spread like wildfire to all levels of the economy. Effectively everyone can play this game corporations have been playing forever.
Right from the communist manifesto. Down with free market capitalism.
You wouldn’t go to work in the morning if you weren’t greedy. The more value you offer the more your greed is rewarded. Regular people gladly pay for value and profit the providers who become rich.
Companies pass on savings all the time. At least in non-oligopoly industries. Why do you think you see aggressive pricing in things like electronics or happy hours at restaurants. Where you don’t see it is in areas where there are oligopolies (including labor oligopolies which = unions) that control pricing and collude together.
Anyway, Biden is supposed to get the blame. He’s the one in charge. If Trump wins in November then after a brief grace period (the fabled 100 days) he will then be blamed.
Carefully thought out and supported by the evidence. Oh, there is no evidence. Perhaps your next post?
There was a surge in “means-of-payment” money in the 1st qtr. There was also a “cold spell”.
Even more federal deficit spending fixes this.
Lucky we just sent 100 billion to Ukraine and Israel then 🙂
It’s almost as if they knew…
This print underscores the worthlessness of the GDP NOW estimates. They usually overshoot actual GDP but this time around every single estimate was on the high side. Not a single one even came close.
Confucious says, Sticky inflation cause stinky depression.
You mean itchy butt…
This is DEI in action. Companies are passing over the best hires for diversity reasons, and that is inefficient and inflationary. This is a classic problem with a socialist economy. If the US does not get off this DEI bandwagon, we will not be the leader of the world anymore.
DEI is idiotic and immoral, but it’s a minor detail in this trainwreck of an economy. The debt bubble has finally blown, and we’re only in the 1st inning of this catastrophe.
If you do not hire the best people at the top, the economy is not productive, then we will not be able to pay our debt, and it will blow up. DEI is the match.
DEI is too recent to matter, our debt issues have been building up for decades, and around 85% of all CEOs are still white dudes.
Given enough time brainless DEI initiatives could cause real problems but as of right now, it’s too new of a concept and mostly limited to university eggheads in sociology departments and such. Those aren’t the people who were going to invent a better mousetrap anyway.
Not true. I know engineers at a major auto manufacturer. They are telling me that all promotions are now DEI based. Merit is not working anymore. So, all the non-diverse engineers stopped working overtime and are doing as little as they can to keep their job. Development costs are spiraling. Other engineers who planned to stay on are retiring, and the new diverse candidates replacing them are have lower grades from unremarkable schools. This is going on in every corporation in America.
Which one of these engineers designed my 2009 GM to be so hard to work on and have a failed transmission at 60,000 babiesd miles, and a timing chain stretch shortly after. This was all before DEI based hiring.
It’s not just DEI based, merit no longer means what it used to in corporate america. Too many parasites that are too entrenched.
“DEI is too recent to matter, our debt issues have been building up for decades, and around 85% of all CEOs are still white dudes.”
I don’t agree it’s “too” recent. DEI hides incompetence at all levels, coupled with Covid workplace changes. Folks who a short time ago were hard chargers now are thinking “Why should I bust ass for this organization when no one else is”. It’s very infectious. CEOs aren’t doing jack$hit to curb it. They wring their hands in faux consternation as they plan their “stock option” exit strategy…
You have any stats to back that up? No. I doubt you even have a job from which you could gather anecdotal observations.
You’re just parroting stuff that makes you feel special.
Harvard president, Kamala Harris, Disney firing John Lasseter…
If you hire less intelligent people, then bad decisions are made. If you do this at every company, then the entire country will go bankrupt. Socialism has never worked.
DEI isn’t socialism, though. Socialism is happening because people like to vote for benefits (ie SS, Medicare, etc) and don’t like taxes, and so we just trundle along. The problem is democracy, unfortunately.
Yeah, it reminds me of when my son as a teenager got turned down for a dishwasher job because he didn’t have dishwashing experience. They were using that as an excuse to fill their illegal alian quota like all restaurants do. It is always nice when you can get someone with 5 years dishwashing experience for sub market wages.
Mr. Market can’t spin this.
Reality getting it’s turn at-bat w/ the bases loaded.
Popcorn vendors doing brisk business in the bleachers.
Commerce Dept tries to fudge inflation distortions, but $5/apple is beginning to show up in the numbers.
Watch, the economic politburo will formulate a new methodolgy that gives them the desired statistics.
The market will spin any negative economic news as an excuse for a rate cut, which will be net bullish. Not saying that I agree with this reasoning, but that’s what’ll happen. The equities selloff will be short lived, imo.
And what inflation hedge would you buy other than common stocks? Houses and lots? Yeah, ho houses and lots of liquor.
Pretty much all assets besides fixed-income have been outpacing inflation. Like Mish always says, there’s two different economies: one for those with assets and one for those without. Both parties are getting hit with inflation, but those that own real estate or have a 401k that’s bursting at the seams are punch drunk with wealth, at least on paper.
“…at least on paper.”
aahhh… there’s the rub.
I agree with you 100%, but the wealth affect is a big part of why outrage over inflation hasn’t manifested itself moreso. Lots of folks are still spending like it’s going out of style… restaurants, shopping centers all packed. Only the finest new cars. Even if it means borrowing to maintain that lifestyle. Ever-rising assets will bail out the dimwits or so they think. The truth remains to be seen, but Americans’ threshold for financial pain is virtually zero and the Fed and politicians will prevent a meltdown at all costs.
Neither the Fed nor the politicians can prevent a “meltdown” (aka inflation, recession, depression)
In somebody’s immortal words…”You can’t bullsh*t math”
Part of the Q2 dip was Federal Soending slowing down due to the budget stalemate. The FY24 spending deals in March will result in higher gov’t spending in Q3&Q4.
Have you looked at the federal spending numbers for Q1?
No, you didn’t.
In 1Q24, federal spending was $1.635 trillion v $1.702T a year earlier, a decline of 4%. In 4Q23, it was $1.618T, making 1Q24 spending 1% above the prior quarter.
I don’t see any big moves here. Certainly not enough to change the GDP numbers. Evidence, it’s what’s for breakfast. We shall see what happens in 2Q. In any case, GDP doesn’t change the political equation. Unemployment does that. We shall see about that come early July.
link to fiscal.treasury.gov
I’ve been reading the blog a while and seeing the recession predictions that are contrary to what I see in our business. Business in metal fabrication has been great. Currently, we are now seeing customer push outs and a slowdown. Started in February. It’s not a cliff but my expectations are that 3rd and 4th quarters of 2024 will be below the same quarters in 2023. Q2 2024, we will be reducing backlog and is likely the high point in this cycle.
As a note, we lag the economy by about 6 months.
The lag is typical for manufacturing companies. I grew up in a city dominated by manufacturing before the rise of outsourcing to China, and both recessions and recoveries arrived late because manufacturers didn’t turn on a dime. Shutdowns and restarts took time and expense, partly because of union contracts, so those companies would hesitate in both directions.
This is not any criticism (I upvoted your comment) but only an observation. Correct me if I am wrong, but I am guessing that your enterprise is in the middle of the supply chain, and therefore your customers wait a while before cutting their orders. Would that be right?
As a personal anecdote, I had a summer job working third shift at a foundry. Friends would ask what they made, and I would say “shapes.” Took me a while to get used to going to lunch and having a shot and a beer at 2:30 a.m. Those were the days!
Looks like Real GDP will be negative for many years.
Sadly, the government’s response will be to spend even more whilst the private sector cuts back. Public Debt will go through the roof. Well, it already has.
No way out.
There is no way out for the whole but for individuals that focus on profits and exit strategy, there is a way out.
Case in point, my SPY puts are printing tendies today. Up 12% so far but PCE comes out tomorrow….
Will the Gubmint one day steal from bondholders by giving itself a debt jubilee? Imagine if that becomes a real concern.
They’ve done it before, and of course they will do everything they can get away with this time.
They’re already working to raise capital gains and inheritance tax rates.
As they should. Why should money you get because you have money be taxed less than money you worked for?
That money was originally taxed once as ordinary income. Leftovers (if available) from that ordinary income will again be taxed as investment income as either a short-term or long-term capital gain.
Not true for capital gains. It’s only the gain you pay tax on, not the original investment (which has already been taxed).
It *might* be true for inheritance taxes. I say might because some of the inheritance could be original after tax money in which case you are right that it’s taxed twice. But some may also be unrealized gains which wouldn’t have been taxed. Inheritance taxes are a sore subject but luckily for more people it doesn’t affect them because the threshold is in the millions of dollars.
Except in 6 states that still impose the tax. Try not to reside in these states when you die to help your beneficiaries.
States that currently impose an inheritance tax include:
link to nolo.com
Biden wants to tax capital gains at 45%. Our tax bracket is NO WHERE near 45%.
link to atr.org
Because for majority who live from wages that money was already been taxed as an income.
To be fair it’s really our collective response. We keep voting for people who promise not to touch any entitlements or military spending, and we keep voting for people who promise to cut our taxes. The government is doing exactly what most of us voted for.