Real Gross Domestic product (GDP) increased at an annual rate of 2.1 percent in the fourth quarter of 2019 according to the “Advance” GDP Estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.1 percent. For the year, Real GDP increased 2.3 percent in 2019 compared with an increase of 2.9 percent in 2018.
Consumer Metrics Comments
Rick Davis at the Consumer Metrics Institute has some choice comments.
This is one of the more misleading headline numbers we have ever seen. It simply does not reflect the overall weakness in the data. The key growth of consumer spending was down nearly a full percentage point (-0.91pp) from the prior quarter. Commercial and private fixed investments were stagnant, and inventories were being allowed to contract. The healthy headline number is generated almost entirely from a huge uptick in imports ‘growth’ and an implausibly low inflation deflator.
For this estimate the BEA assumed an effective annualized deflator of 1.50%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was significantly higher at 3.39%. Under estimating inflation results in optimistic growth rates, and if the BEA’s nominal data was deflated using CPI-U inflation information the headline growth number would have been a minuscule 0.22%.
Some people will take the BEA’s “bottom line” number from the report (their “Real Final Sales of Domestic Product”) at it’s very attractive face value of +3.17% growth. If so, they will be seriously misled. Neither consumers or fixed investments are driving the headline number. Because of that, the cosmetics of this report are far more glamorous than the reality would suggest.
Notable Items
- Consumer spending for goods was reported to be growing at a 0.26% rate, down -0.83pp from the prior quarter.
- The contribution to the headline from consumer spending on services was reported to be 0.94%, down -0.08pp from the prior quarter. The combined consumer contribution to the headline number was 1.20%, down -0.91pp from the prior quarter.
- The headline contribution for commercial/private fixed investments was reported to be 0.01%, up 0.15pp from the prior quarter.
- Inventories subtracted -1.09% from the headline number, down -1.06pp 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 reported to be 0.47%, up 0.17pp from the prior quarter. That growth was evenly split between Federal and state or local spending.
- The contribution from exports was reported to be 0.17%, up 0.06pp from the prior quarter.
- Imports added 1.32% annualized ‘growth’ to the headline number, up 1.58pp from the prior quarter. Note that in the BEA’s calculation matrix the consumption of imports subtracts from domestic production, and ‘growth’ in this line actually reflects either foreign exchange swings or weakening domestic demand for foreign goods. In aggregate, foreign trade contributed a net 1.49pp to the headline number.
- The annualized growth in the ‘real final sales of domestic product’ was reported to be 3.17%, up 1.05pp from the prior quarter. This is the BEA’s ‘bottom line’ measurement of the economy (and it excludes the inventory data).
- Real per-capita annualized disposable income was reported to have increased by $111 quarter to quarter. The annualized household savings rate was 7.7% (down -0.1pp from the prior quarter). In the 46 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.50%.
David Rosenberg Comments (Emphasis Mine)
- GDP Reveal a Business Recession Beneath the Surface
- All anyone needs to know from today’s GDP report is that real private final sales slowed to a four-year low of 1.4% at an annual rate from 2.3% in Q3
- Business investment contracted at a 1.5% annualized pace, the third decline in a row – a string we last saw in the Great Recession
- The consumer weakened inQ4to a 1.8% annual rate from 3.2% the prior quarter
- It’s never a very bullish event when virtually all the GDP growth in a given quarter is centered in more government spending and the statistically positive contribution from slumping imports
The above points are from today’s Rosenberg commentary “Deep Dives and Market Movers”.
In regards to point 2, Rick Davis’ 3.17% is for real final sales of domestic product. Whereas Rosenberg’s comment pertains to real final sales to private domestic purchasers.
Government Consumption Expenditures and Private Investment
Check out Line 7 and 22 of the Report
Of Durable Goods Orders (and How to Buy an Election)
Regarding line 22, please recall my January 28 post Of Durable Goods Orders (and How to Buy an Election)
Mike “Mish” Shedlock
Confidence still seems high in my local NC market as it relates to small business marketing spending. As for consumer goods spending, the 25% import tariffs are most likely having a bit of a slowing affect on our economy – holding back expansion. link to enpeakgroup.com
It was a bad report, heavily dependent on imports. Which will evaporate in Q1 thanks to Coronavirus hysteria.
Propaganda ministry has decreed goin forward all 2’s all the time (permanently),like the permanent trillion dollar annual deficit regardless of how many trillions big gov borro every year….it will be “officially”a 1 trillion dollar annual deficit!
“For this estimate the BEA assumed an effective annualized deflator of 1.50%.”
That seems like the big little lie right there. Mish, any idea how they justify a deflator that is less than half of BLS’s CPI-U number?
CPI for 2019 was 1.6%. I know because that was my COLA as a disabled vet. On the other hand my actual cost of living went up in 2019 by about 11.6%. Someone just dropped a one, and I am sure they will make it up to us next year .
Seriously, I wanted tomatoes, $4.99 per pound, I live in Oregon not Nome. Frozen burritos were $3.18 a package two weeks ago now $4.25. Even broccoli which is a winter harvested veg was $3.49. Fish that was $9 per pound a couple months ago was $12. Avocados were $2 each and hard as rocks. Every one of these examples is double or triple digit gains, and I could go on for paragraphs, that is not even inflation, it is hyperinflation. Safeway blames it on the Albertson’s merger because they took on so much debt in the process that prices had to skyrocket just to service all that new debt.
Well, they will have to get it from someone else, my raises over the last 6 years amount to 8.4% so I will pay 8.4% more than I paid in 2013 (the year that the 2014 COLA was based upon) if they want to charge 100% more than then they can just shove it up their arse, I will not pay it and the food can just rot on the shelf. Unfortunately I do not have that option with housing which is up some 90% since the 2013/14 lease. But, it is also another reason why I will not and cannot pay so much more for other necessities.
Let’s face it, if they say inflation us well under 2% when it is actually closer to 12% then what will they be if Powell gets his much desired higher inflation? And I cannot afford anymore rent increases at all, thus the move to Florida to buy a house and lock in these much higher motnhly housing costs, because while they are a lot higher they are far better than what rents will be in 5 years. You watch and see, by 2024 election year homelessness will not just be a crisis, it will be an emergency.
On the BLS site I see 2019 CPI was 2.3%.
Homelessness? I am up the road in Portland and reckon I pass 50 tents on my commute to work. That’s in January — expect it will be at least triple in summer.
Ah, now I understand how the housing bubble doesn’t factor into the centrally approved inflation number: the proliferation of tent dwellings. /s
Great, I have a contract on a house in Florida and the going rate for a 30 year VA mortgage as of today (Navy Federal Credit Union) is 3.275% and I just think that is ghastly and outrageous considering for the vast majority of my 62 years the mortgage rate was right about the 10 year Treasury + 100 basis points. And the 10 year was at 1.50% today. Meaning the 30 year mortgage rate should be 2.5%, and the VA even lower.
Of course houses are all grossly overpriced as well, but in the last few weeks I have come to the conclusion that the Fed intends to get much higher inflation (Powell said so yesterda and that makes me think there will be a surprise cut next month).
That would make even overpriced RE a decent hedge against inflation and I do not close till the first week of April. Now what I can afford to eat may become a problem. I mean I went to the store for a few things yesterday and left without most of them. When you reach for an item on the shelf and withdraw your hand as if it were scalded because the price is anywhere from 25% higher to double what it was just back before Christmas a whole 5 weeks ago it has that effect.
“… generated almost entirely from a huge uptick in imports ‘growth’ ….”
Can someone explain how imports add to GDP? I thought imports subtracted from GDP i.e. exports less imports is added to calculate GDP ..
Boeing’s sales were down 35% YoY ($10B) for the last quarter due to the Max disaster. Layoffs at suppliers have already started. One should expect the GDP to head lower and a recession entered this year.
One of my personal indicators; more used cargo vans for sale on craigslist here in Los Angeles
Maybe having to spend $20,000 for a high-deductible family health insurance plan doesn’t leave much for “discretionary spending”?
“Real GDP is much worse than it looks?”
I don’t understand. I thought China was the only country that lied about its economic numbers. /sarc
Headed to < 1% growth for Q1 because of nCoV. We will soon find out if stall speed is an actual thing or not when rates are ~1.25%
Nominal growth consensus was 4.1% (with deflator of 2.0%).
Deflator was laughably low 1.4% … leaving nominal growth only 3.5%.
All you need to know on “quality” of growth.
BEA: Current-dollar GDP increased 3.6 percent, or $191.7 billion, in the fourth quarter to a level of $21.73 trillion.
per Monthly Treasury Statement – fedgov deficit for Q4 … $356.578 billion.
And factor in the ever escalating debt for households, business, state & local govts ….