For the best read on this most important topic, let’s review the work of Consumer Metrics Institute’s Rick Davis who recently released, BEA Revises Second Quarter Growth Rate for 1Q-2012 Down to 1.88%,
In their second estimate of the first quarter 2012 GDP, the Bureau of Economic Analysis (BEA) lowered the annualized rate of U.S. domestic economic growth to 1.88% (down about a third of a percent from the 2.20% previously reported), and now more than a percent below the growth rate for the fourth quarter of 2011. This revision to the prior month’s report does not reflect actual monthly changes in the economy, but rather another month’s improvement in the BEA’s understanding of what was happening during the prior quarter.
The real net changes in the report came from slightly weaker consumer growth and a further deterioration of government spending — which between them made up the entire change in the headline number. Other than those changes this revision is notable for completely offsetting shifts in the growth contributions provided by commercial fixed investments (which strengthened slightly) and commercial inventories (which had offsetting weakness), and exports (strengthening modestly) and imports (deteriorating comparably). The BEA’s bottom-line “real final sales” improved very slightly to an annualized growth rate of 1.67% (from 1.61% in last month’s report) — which, like the headline number, continues to be anemic for an economy that is supposed to be nearly three years into a recovery.
The BEA continued to use “deflaters” that at first glance seem to understate the inflationary experiences of the public. To correct the “nominal” data into “real” numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.65%. As a reminder, lower “deflaters” cause the reported “real” growth rates to increase — and once again very low seasonally adjusted BEA inflation “deflaters” have contributed a significant positive bias to the headline number. In fact, if the raw “nominal” numbers were instead “deflated” by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period the economy would have been reported to have been contracting at a -0.13% annualized rate.
What does this mean? Can you say, “the BEA is ‘cooking the books’ so as to give an appearance of some kind of growth? That’s right!!
And real per capita disposable income was still reported to be shrinking during the quarter — even using the BEA’s optimistic “deflaters.” We find it unrealistic to expect any kind of continued recovery (let alone a “robust” recovery) throughout 2012 with household disposable income dropping.
Among the notable items in the report:
– The contribution to the annualized growth rate for consumer expenditures for goods weakened very slightly to 1.44%, (down from 1.47% in the prior report, but still up 0.15% from the 1.29% for the fourth quarter of 2011).
– The contribution made by consumer services also deteriorated (to 0.47%).
– The growth rate contribution from private fixed investments improved significantly to 0.61% (up from 0.18% in the last report). But this number was nearly completely offset by a drop in the contribution made by inventories (now 0.21%, down substantially from the 0.59% reported earlier).
– The reported drag on GDP growth from contracting expenditures by governments grew somewhat at -0.78%, now nearly the same as the -0.84% reported for 4Q-2011. The largest share of the contractions continued to be Federal defense spending, although state and local governments still provided a net -.30% contribution to the headline number.
– The annualized contribution to the growth rate from exports rose to 0.98% (up from 0.73% in the prior report and materially improved from the 0.37% contribution provided in the prior quarter).
– Imports are now removing -1.05% from the growth rate of the overall economy, significantly worse than the -0.63% recorded during 4Q-2011. The net of foreign trade was still very slightly negative (subtracting -0.05% from the headline number).
– The annualized growth rate of “real final sales of domestic product” rose to 1.67%, but it is still a 1.49% below the +3.16% reported for the third quarter of 2011. This report’s improvement is largely the result of a weakening in the growth of inventories. If this number is accepted at face value (and not as a consequence of “deflaters” playing havoc with inventory valuations) it still indicates a much weaker economy than is conveyed in the headline number.
– Real per-capita disposable income shrank at an annualized -0.22% rate during the quarter (from $32,572 per capita to $32,554 per capita) — and it still remains lower than it was during the 3rd quarter of 2010, some 5 quarters ago.
Do you think the administration is discussing with Big Ben as to when he will come in with another dose of quantitative easing to goose the market pre-election? No doubt.
On this note…navigate accordingly.