Can We Believe The “Wonderful” GDP News?

by Rick Davis, Consumer Metrics Institute

In their second estimate of the US GDP for the second quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 3.70% annualized rate, up +1.38% from their previous estimate and up +3.06% from the first quarter.

This report included significant upward revisions to the growth rate contributions from commercial fixed investment (revised upward +0.52%), inventories (up +0.30%) and government spending (up +0.33%). Consumer spending was revised upward a more modest +0.13%, and the net impact of exports and imports was also revised upward +0.10%.

Real annualized per capita disposable income was reported to be $37,843 per annum, down $3 per year from the last estimate. The household savings rate was unchanged at 4.8% — still down -0.4% from the prior quarter’s 5.2% rate.

For this revision the BEA assumed an annualized deflator of 2.07%. During the same quarter (April 2015 through June 2015) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 3.52%. Under estimating inflation results in optimistic growth rates, and if the BEA’s “nominal” data was deflated using CPI-U inflation information the headline number would show a more modest +2.33% growth rate.

Among the notable items in the report :

The headline contribution from consumer expenditures for goods was +1.19% (up +0.15% from the previous estimate).

The contribution to the headline from consumer services decreased slightly to +0.93% (down -0.02% from the previous report). The combined consumer contribution to the headline number was 2.12%, up +0.13% from the first estimate.

The headline contribution from commercial private fixed investments was revised upward to +0.66% — up an impressive +0.52% from earlier report.

Inventories changed from a mild contraction to a modest growth, providing +0.22% of the headline number (up +0.30% from the previous estimate).

Governmental spending added +0.47% to the headline (up +0.33% from the earlier report). The revised growth was almost entirely in state and local infrastructure investment.

Exports were slightly down from the last estimate, but still added +0.65% to the headline number (down -0.02% from the first estimate).

Imports subtracted less from the headline number (-0.42%) than previously reported (an improvement of +0.12%).

The “real final sales of domestic product” is now reported to be growing at a +3.48% annualized rate. This is the BEA’s “bottom line” measurement of the economy and it excludes the reported inventory growth.

And as mentioned above, real per-capita annual disposable income was revised slightly downward and the household savings rate was unchanged. The real per-capita annual disposable income is up only +3.18% in aggregate since the second quarter of 2008 — an annualized +0.45% growth over the past 28 quarters.