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Real GDP Slows to 1.1 Percent in 2023 Q1, Underperforming Expectations

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18 comments on Real GDP Slows to 1.1 Percent in 2023 Q1, Underperforming Expectations

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GDP data from the BEA, chart by Mish. 

Gross Domestic Product, First Quarter 2023

Please consider the Advance Estimate of Gross Domestic Product, First Quarter 2023.

2023 Q1 Numbers Seasonally Adjusted Annualized Rate

  • Real GDP rose 1.1 percentage points (PP).
  • Real Final Sales (RFS) were up 3.4 percent. RFS is the bottom line number. The rest is inventory adjustment which nets to zero over time.
  • Inventory adjustments subtracted 2.3 PP from GDP.
  • Real Final Sales to Private Domestic Purchasers rose 2.9 percent. Government spending contributed 0.5 PP to the RFS total.
  • Personal Consumption Expenditures (PCE) rose  3.7 percent. 
  • The PCE price index rose 4.1 percent.
  • Gross Private Domestic Investment fell a 12.5 percent.
  • Residential Investment fell 4.2 percent.
  • Durable Goods spending rose 16.9 percent.

Consumers Strong, Business and Housing Weak

Assuming the numbers are not heavily revised, consumer spending was strong with weakness in business and housing slowdown. 

The strength in consumer spending was primarily in January but tighter bank lending and another Fed rate hike will add further economic pressures.   

Gross Domestic Income 

The BEA will not report Gross Domestic Income (GDI) until the third revision of 2023 Q1. That’s months away.

GDP and GDI are two measures of the same thing. GDI was a disaster in 2022 Q4.

The GDP revisions in the fourth quarter of 2022 were quite amazing. Thus, I am skeptical of these numbers. 

But if they hold, then the earliest we can see recession is February. 

GDPNow Forecast for 2023 Q1 Dives to 1.1 Percent

Congrats to Atlanta Fed’s Pat Higgins whose GDPNow forecast was 1.1 percent, smack on the nose. In contrast, the Bloomberg Econoday consensus was 2.0 percent.

For discussion, please see GDPNow Forecast for 2023 Q1 Dives to 1.1 Percent, the BEA Reports Thursday

Yesterday, I commented 

GDI is delayed for many months so we will not know its take for a while. It is signaling recession or verge of recession. GDP isn’t.

If GDP is revised to match GDI, and GDI is weak in 2023 Q1, a recession has begun. This is not all that unlikely, but nor is it certain.

Heading into recessions, revisions are heavily negative as the above chart shows. Heading out of recessions, revisions tend to be heavily positive.

The NBER, the official arbiter of recessions, averages GDP and GDI. But the NBER is usually so late that the point is moot. By the time the NBER announces, most of the revisions are already in. 

M2 Money Supply Declines 8 Straight Months, ODL Down 12 Straight Months

Meanwhile, please note M2 Money Supply Declines 8 Straight Months, ODL Down 12 Straight Months

Money supply is declining at the sharpest pace since the Great Depression.

Businesses have responded. Consumers will, assuming they haven’t already with revisions pending.

This post originated on MishTalk.Com.

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18 Comments
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MPO45v2
MPO45v2
3 years ago
“Over the year, total compensation rose 4.8 percent, wages and salaries rose 5.0 percent, and benefit costs rose 4.5 percent.”
What’s going on? I thought we were in a recession? How can this be? Do the millions of boomers retiring every year, depleting the labor force but continuing consumption, have anything to do with it? Inquiring minds want to know.
What’s JPow gonna do about it?
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vanderlyn
vanderlyn
3 years ago
In the US, public spending as a share of GDP was 10.5% in 1941, then went up to 44.1% in 1945, and then went back down to 12.2% in 1948. In the third period, between 1945-1980, public spending grew particularly fast.
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vanderlyn
vanderlyn
3 years ago
stagflation at best. ain’t NO recession, yet. also GDP is a bogus number. way too much government spending in it.
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worleyeoe
worleyeoe
3 years ago
Reply to  vanderlyn
Totally, agreed. Of the nine bullet points, 6 were up. Real final sales were up 3.4%. All this talk about recession being imminent is BS. Mish has been parroting that for almost 10 months now. At some point, he’ll “eventually” be right. Just like 12 months ago, the drop in GDP was mainly attributable to lower private inventories. Well, guess what happened in late Q2 & Q3? Inflation blew through the roof. Now, I’m not suggesting that is about to happen. But, we’ve got to see 1st time unemployment claims stay upwards of 250K for a solid 2-3 months before we can get all excited that the recession boogie man is coming.
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HippyDippy
HippyDippy
3 years ago
I can tell you that in North Florida, where I’m at, consumer spending is not strong. It’s impossible for it to ever be strong, considering how the labor market is manipulated by the owners of this area; but it’s definitely weak now. The nabobs of small localities around the world are even more destructive than the federal agencies. I know, it’s hard to believe, but that’s only because reality is such a bitter pill to swallow. But that’s what the slaves all want: suffering.
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vanderlyn
vanderlyn
3 years ago
Reply to  HippyDippy
read lafargue “the right to be lazy”. the greatest economics book ever penned. 40 pages only. he’s been cancelled by amerika. he describes why the slaves love suffering. the why.
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HippyDippy
HippyDippy
3 years ago
Reply to  vanderlyn
Thanks. Had not heard of him before. Though I do have my own “cynical” (aka realistic) thoughts on why this is so. But I do love to be enraged by opposing views. The best way to learn. Though I find the lack of quality in the views of most even more enraging. Nothing to offer but ego. Yech!
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HippyDippy
HippyDippy
3 years ago
Reply to  vanderlyn
Just read it. Sorry, but I find it hard to take Marx seriously. Except as an intellectual buffoon. I did try and read Marx’s works but I wound up trying to forget his words as I felt he was nothing more than a deranged and hateful fool. I don’t like our capitalism either, but that’s a more complicated dislike. I’m a “country boy anarchist” as I explain to my country friends. I also have been in many of the poorest countries, and disagree completely with the Marxist projections of their purity. And of their desires.
Strangely enough, I would say that Henry Ford, of all people, hit it squarely on the head. Thinking is hard work, and that’s why people don’t like it. I would also like to add, that while Jesus noted correctly that it was for lack of knowing the truth that the people weren’t free; he was wrong in believing they wanted to know it. I did enjoy reading it, but it’s mostly because I find communism itself hilarious. It only thrives because Wall Street loves it as it is the ultimate monopoly. I do see Wall Street as equally dangerous as communism, but I see that the desire to avoid suffering, the desire to rule others (a desire of those who cannot rule themselves), the desire to avoid personal responsibility, consequenceiof one’s own actions, and laziness, some of our greatest threats. I could go on, but that’s just an old man rant then. Thanks for the link though. Though I had just gotten through reading a section of a rather mediocre history book, Modern Times, in which I was reading about the Pol Pot communists. They didn’t seem to subscribe to that right to be lazy line of thought.
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vanderlyn
vanderlyn
3 years ago
Reply to  HippyDippy
check out david graeber “dawn of everything”. “BS jobs” and. “debt, 5000 year history”. three spectacular reads.
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HippyDippy
HippyDippy
3 years ago
Reply to  vanderlyn
I’ve read the debt one, though its been a while. Oddly enough, I’m not a big fan of debt jubilees. It’s a moral point for me. My word is my bond sort of thing. But the way we imprison people through debt is inexcusable. But I will slap the others onto my wishlist at the store I hate: Amazon. I do remember agreeing a good bit with the debt book, I just went different directions with the same things. I do remember it being remarkable though. Thanks.
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hmk
hmk
3 years ago
Reply to  HippyDippy
Capitalism isn’t the problem, its corrupt crony capitalism that is at the root of our problems. When you can bribe the ruling class to get what you want the other proletariat suffer. Free market capitalism has created more wealth and prosperity throughout the world than any other economic or political system.
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HippyDippy
HippyDippy
3 years ago
Reply to  hmk
You got much of it, though I see cronyism as a symptom and not a cause. The state created the cronyism. And the baser elements of human nature provides a fertile field for it to flourish.
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vanderlyn
vanderlyn
3 years ago
Reply to  HippyDippy
i read the books for insights. i never worry about agreeing with authors prescriptions in economics. karl marx was a brilliant observer of economics. his prescription was improper and insane, for the species, human primate. same goes for lafargue. his analysis of the economy over past 500 years was spot on. rare analysis.
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HippyDippy
HippyDippy
3 years ago
Reply to  vanderlyn
I never really associated Marx with brilliance. He backed off on the subject after the Austrians responded to him. Communists are the best at twisting data to suit their goals though. He just struck me as a frustrated psychopath. The only thing worse than his politics was his poetry. His true self shone through in it. Marxism is the ultimate death cult.
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Thetenyear
Thetenyear
3 years ago
“GDPNow hit the number on the nose”…yesterday.
Yet every single prior estimate in February, March and April was higher than the final number. And just a couple of weeks ago the ATL FED was at 2.5%. GDPNOW data has no predictive value except to say that it is highly likely that actual GDP will come in lower than any given estimate throughout the quarter.
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MPO45v2
MPO45v2
3 years ago
the markets seem to like it. Dow up 400 points. This will make JPOW pound his interest rate fist harder next week. We’re getting close to the end of April so I assume another 150,000 boomers walked off the job for good this month ready to ride the socialism train. Choo! Choo!
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xbizo
xbizo
3 years ago
Another data point for you. Small business M&A, companies under $5MM in revenue, 2022 reported deals (most are not reported), fell from a run rate of 2100 deals to 1000. 2100 deals was a peak level for the last three years brought on by boomer exits, high multiples and low interest rates. This compares to 1300-1400 deals annually prior to 2015.
There’s a similar pattern in deals $5MM to $75MM.
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Portlander2
Portlander2
3 years ago
Hi Mish–You didn’t mention net exports. Is that in the computation of Real Final Sales? How noisy is this number (in terms of future revisions)?
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