Friday, August 27, 2010

Consumption, Investment and Trade Are All Up

Here's a breakdown of the percent changes in the components of real GDP for the second quarter (from Table 1 of today's BEA report):

1. Personal consumption expenditures (PCE): 2.0% in QII, matching the growth rate of personal consumption spending in third quarter of 2009, and the highest growth rate in PCE since the 2.4% rate in the first quarter of 2007.  The 2% growth in PCE follows increases over the previous three quarters of  2.0%, 0.9% and 1.9%, which marks the first period of four consecutive quarterly increases since 2007 (QI to QIV), and follows four straight quarterly decreases from QIII 2008 to QII 2009.   

2. Gross Private Domestic Investment: 25.0% in QII, which was the fourth consecutive quarterly increase in investment, following double-digit increases of 29.1% in the first quarter, 26.7% in QIV 2009, and 11.8% in QIII 2009.  The four consecutive quarterly increases over the last year follows eight consecutive quarterly decreases from QIII 2007 to QII 2009.  The average quarterly growth in investment spending of 23.15% over the last four quarters is the highest annual average since 1987.  

3. Exports: 9.1% in QII, following increases of 11.4% (Q1 2010), 24.4% (QIV 2009) and 12.2% (QIII 2009), for an average growth rate over the last year of 14.3%, which is the highest annual average since 1996.  The positive increases in exports over the last four quarters follows four quarters of negative growth from QIII 2008 to QII 2009.

4. Imports: 32.4% in QII, the highest quarterly growth in imports since 1975, and the fourth consecutive quarterly increase (11.2% in Q1, and 4.9% and 21.9% in QIV and QIII 2009) following four straight quarterly decreases.  The average quarterly increase of the last year of 17.6% is the highest since 1984. 

Bottom Line: Except for the fact that we subtract imports from exports to calculate GDP, the growth rates above in private sector activity (consumption, investments, and international trade) in the second quarter of this year, and over the last four quarters, suggest that the economy may be in better shape than indicated by the 1.6% growth in real GDP.  

16 Comments:

At 8/27/2010 11:01 AM, Blogger VangelV said...

Personal consumption expenditures (PCE): 2.0% in QII, matching the growth rate of personal consumption spending in third quarter of 2009, and the highest growth rate in PCE since the 2.4% rate in the first quarter of 2007.

Wonderful. Bankrupt consumers chose more spencing over repairing their balance sheets. Why is that a good thing again?

Bottom Line: Except for the fact that we subtract imports from exports to calculate GDP, the growth rates above in private sector activity (consumption, investments, and international trade) in the second quarter of this year, and over the last four quarters, suggest that the economy may be in better shape than indicated by the 1.6% growth in real GDP.

We need a reality check. The level of real activity is still very low and the real economy is running into regulatory, fiscal, and monetary policy headwinds.

 
At 8/27/2010 11:10 AM, Blogger juandos said...

I guess the BEA (home of the juggled numbers?) and the AP need to get their stories straight...

From the AP: The Commerce Department on Friday will revise its estimate for economic growth in the April-to-June period and Wall Street economists forecast it will be cut almost in half, to a 1.4 percent annual rate from 2.4 percent...

According to Reason there's more fun to come...

 
At 8/27/2010 11:19 AM, Blogger morganovich said...

but how does this 2% rate compare to other recoveries from severe recession?

2% growth after a decline of that magnitude doesn't seem terribly impressive

 
At 8/27/2010 11:33 AM, Blogger VangelV said...

but how does this 2% rate compare to other recoveries from severe recession?

There are two issues that matter in this discussion. The first is the accuracy of the data, which will be revised a number of times and still may not be truly reflective of reality. The second is the level of real activity, which is still very low.

 
At 8/27/2010 1:16 PM, Blogger morganovich said...

here's a very interesting chart.

it shows real GDP growth in the first 12 months of a recovery plotted against the peak to trough GDP decline in the previous recession.

http://2.bp.blogspot.com/_Zh1bveXc8rA/THe0ScTfsPI/AAAAAAAABUo/39uHIbxH0Cs/s1600/Clipboard01.bmp

as can be readily seen, this is the only recovery since the second world war in which real GDP growth in the first tear of recovery was not greater then the overall decline.

in the average case, growth was 2-3 times the decline, implying this is a VERY slow recovery relative to normal.

in the deep recessions like 1958 and 1982, recovery was much more rapid. this recovery is weak even for a mild recession.

a 2% move in personal consumption is not going to drive anything like a typical recovery, especially as the evidence seems to be that we are slowing even from these punk levels.

 
At 8/27/2010 5:10 PM, Blogger PeakTrader said...

You can compare output and employment between the last severe recession, in the early '80s, and this one at:

The Federal Reserve Bank of Minneapolis: The Recession and Recovery in Perspective.

Unlike the V-recovery in the early '80s, this one is a slow U-recovery or almost an L-recovery.

We could've dug out of this deep hole by now and had real growth of 4% with 2% inflation going forward.

Instead, we're still in the deep hole and may get 2% real growth with 4% inflation.

Also, from the BEA today:

"Real final sales of domestic product -- GDP less change in private inventories -- increased 1.0 percent in the second quarter, compared with an increase of 1.1 percent in the first."

 
At 8/28/2010 1:15 AM, Blogger PeakTrader said...

However, demand isn't that weak:

BIGGER TRADE DEFICIT REDUCES GROWTH
Aug 27, 2010

Growth in the last quarter was stifled by a 32.4 percent surge in imports, the largest since the first quarter of 1984, dwarfing a 9.1 percent rise in exports. That created a trade deficit, which cut 3.37 percentage points from GDP, the largest subtraction since the fourth quarter of 1947.

Through the first six months of this year, the trade deficit is running at an annual rate of $494.9 billion. That is up 32 percent from the $374.9 billion deficit for all of 2009 — a year when the deficit was cut nearly in half as a result of the recession.

 
At 8/28/2010 1:08 PM, Blogger Dan Ferris said...

Everyone thinks growth is about spending. But it's not. It's about capital formation, which starts with savings.

 
At 8/28/2010 4:52 PM, Blogger morganovich said...

peak-

it's not even clear that recovery in employment has begun at all.

labor force participation rate just made a new low in july.

http://calculatedriskimages.blogspot.com/2010/08/participation-rate-july-2010.html

 
At 8/28/2010 8:40 PM, Blogger VangelV said...

However, demand isn't that weak:...

Both consumer demand and consumer debt are higher than is being reported in the media.

 
At 8/29/2010 4:03 PM, Blogger Mauad said...

We subtract imports to calculate GDP just because these imports sum up to C, I, G & X. When you buy an imported t-shirt, this transaction increases C, even if the t-shirt was not produced in USA. As GDP calculates DOMESTIC output, the subtraction is only to neutralize the effect of imports presented in others variables. The botton line is that imports doesn't reduce GDP, they're just neutral.

 
At 8/29/2010 4:05 PM, Blogger Mark J. Perry said...

Mauad: Except that more than 50% of imports are not finished, consumers goods, they are inputs (industrial supplies, raw materials, capital equipment, etc.).

 
At 8/29/2010 7:21 PM, Blogger Mauad said...

That's right, Professor Perry, but in this case those imports (capital goods and raw materials) sum up to the investment (I) variable. What I'm trying to say (sorry, I'm not fluent in english) is that each import that is subtracted at the end of equation is alread present in C, I, G or X. Imports do not reduce the GDP calculus, as it is commonly said, specially by protectionists.

 
At 8/30/2010 4:55 PM, Blogger td said...

This comment has been removed by the author.

 
At 8/30/2010 4:56 PM, Blogger td said...

This comment has been removed by the author.

 
At 8/30/2010 4:58 PM, Blogger td said...

To Mauad,

If the increased demand were not to increase imports, it would have increased C, I or G (although it may not be one for one). In that sense, it reduced GDP.

 

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