In their second estimate of the US GDP for the third quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +2.07% annualized rate, up +0.58% from their previous estimate — but still down nearly 2% (-1.85%) from the second quarter.
This report’s headline number was buoyed substantially by a sharp revision in inventories. All of the other line items were either essentially unchanged or weaker. Although inventories are still reported to have been contracting at a -0.59% annualized rate, that is a +0.85% improvement from the -1.44% contraction rate reported in the previous estimate. As we have mentioned a number of times before, the BEA’s treatment of inventories can introduce noise and seriously distort the headline number over short terms — which the BEA admits by also publishing a secondary headline that excludes the impact of inventories. Because of the general weakness in the non-inventory line items, this BEA “bottom line” (their “Real Final Sales of Domestic Product”) was revised downward -0.29% to a +2.66% growth rate for the third quarter, from the +2.93% previously reported.
Consumer activity once again contributed the vast bulk of the headline number (providing +2.05% in total), although that contribution was less than in the previous estimate (down -0.14% in aggregate). Fixed commercial investments and governmental spending were essentially unchanged, while exports and imports weakened materially from the previous estimate.
And in a glimmer of good news, household income was again revised significantly upward. Real annualized per capita disposable income was reported to be $38,260 per annum, up $174 from the previous estimate and now up $293 per year from the prior quarter. The household savings rate was reported to be 5.2% — up substantially from the prior quarter’s 4.7% rate.
For this revision the BEA assumed an annualized deflator of 1.32%. During the same quarter (July 2015 through September 2015) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was slightly negative (dis-inflationary), at -0.37%. Over estimating inflation results in pessimistic growth rates, and if the BEA’s “nominal” data was deflated using CPI-U inflation information the headline number would show a much better +3.78% growth rate.
Among the notable items in the report :
— The headline contribution from consumer expenditures for goods was +1.05% (up +0.06% from the previous estimate, but down -0.15% from the prior quarter).
— The contribution to the headline from consumer services weakened slightly to +1.00% (down -0.20% from the first estimate and -0.23% from the second quarter). The combined consumer contribution to the headline number was +2.05%, down -0.38% from 2Q-2015.
— The headline contribution from commercial private fixed investments was revised slightly upward to +0.54%, up +0.07% from the previous report but down -0.29% from prior quarter.
— As mentioned above, inventories were by far the largest revision — now subtracting -0.59% from the headline number instead of the -1.44% previously reported. As we have mentioned a number of times, this number should be largely ignored.
— Governmental spending added +0.29% to the headline (essentially unchanged, and down -0.17% from the prior quarter). The reported growth was almost entirely in state and local spending.
— The contribution to the headline number from exports (+0.11%) was less than half of the number from the previous report, and only a sixth of the +0.64% recorded for 2Q-2015.
— Imports subtracted more from the headline number (-0.33%) than in the previous estimate.
— The “real final sales of domestic product” is now reported to be growing at a +2.66% annualized rate, down from the +2.93% in the previous estimate. Once again, this is the BEA’s “bottom line” measurement of the economy and it excludes the reported inventory contraction.
— Also as mentioned above, real per-capita annual disposable income was reported to have grown materially during the quarter and the household savings rate also improved substantially. However, this real per-capita annual disposable income is up only +4.32% in aggregate since the second quarter of 2008 — a meager annualized +0.58% growth rate over the past 29 quarters.