Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the second quarter of 2019 according to the "Second" Estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.

GDP Shift

Economists pegged the second estimate correctly but missed the reason: consumer spending carried the day.

Rick Davis at the Consumer Metrics Institute offers pertinent comments.

Although the headline number was essentially unchanged, the report did shift material portions of the aggregate growth into the consumer sector from commercial and governmental activities. Specifically, in the consumer sector spending on goods was revised upward by +0.11 percentage points, while spending on services was revised upward by +0.15 percentage points. Offsetting those improvements, the growth rates for spending on fixed commercial investments, inventories, government and exports dropped a combined -0.27 percentage points.

Notable Items

  • Consumer spending for goods was reported to be growing at a 1.78% rate, up 0.11pp from the previous estimate and up 1.46pp from the prior quarter.
  • The contribution to the headline from consumer spending on services was reported to be 1.32%, up 0.15pp from the previous report and up 0.86pp from the prior quarter. The combined consumer contribution to the headline number was 3.10%, up 0.26pp from the previous report.
  • The headline contribution for commercial/private fixed investments was revised downward to -0.20%, down -0.06pp from the previous report and down -0.76pp from the prior quarter.
  • Inventories subtracted -0.91% from the headline number, down -0.05pp from the previous report and down -1.44pp from the prior quarter. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity pricing or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.
  • The contribution to the headline from governmental spending was revised to 0.77%, down -0.08pp from the previous report but still up 0.27pp from the prior quarter.
  • The contribution from exports was revised to -0.71%, down -0.08pp from the previous report and down -1.20pp from the prior quarter.
  • Imports were left unchanged -- subtracting -0.01% annualized 'growth' from the headline number and down -0.24pp from the prior quarter. Foreign trade contributed a net -0.72pp to the headline number.
  • The annualized growth in the 'real final sales of domestic product' was revised to 2.95%, up 0.04pp from the previous report and up 0.39pp from the prior quarter. This is the BEA's 'bottom line' measurement of the economy (and it excludes the inventory data).


Quarterly Contributions to GDP

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How Long Can This Go On?

Of the reported 2.0% estimate, consumers contributed 3.1 percentage points. and government contributed .77 percentage points for a total of 3.87 percentages out of 2.1%.

The open question, that no one can answer now is "How long can debt-overloaded consumers prop up the economy?"

The rest of the economy is struggling.

Mike "Mish" Shedlock

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