BEA Revises 3rd Quarter 2013 GDP Growth Upward Again

  Daily Absolute Demand Index (1) :     (Click  here  for best resolution)     Notes:   (3) A projection of our basic year-over-year data into an aggregate absolute demand, reflecting the compounding impact of extended expansions or contractions. The data points represent month-long averages of the daily data, normalized so that the year-long average for 2005 would be at 100 in the chart.       Current Weighted Composite & Sector Index Values   <img data-cke-saved-src="http://www.consumerindexes.com/weighted_composite.png" src="http://www.consumerindexes.com/weighted_composite.png" alt="Chart" "onclick="window.open(&quot;http://www.consumerindexes.com/weighted_composite_full.png&quot;) alt=" weighted="" composite="" consumer="" leading="" indicator="" for="" past="" 30="" days'=""> (Click  here  for best resolution) Last 10 Weighted Composite Index Values Date: 12/23/2013 12/24/2013 12/25/2013 12/26/2013 12/27/2013 12/28/2013 12/29/2013 12/30/2013 12/31/2013 01/01/2014 Value: 97.05 97.34 98.27 98.40 98.34 97.27 97.21 96.86 96.51 95.78   Current Values for Each of the Sector Indexes Sector: Automotive Entertainment Financial Health Household Housing Recreation Retail Technology Travel Value (3) : 105.54 97.18 109.70 100.71 101.97 100.84 103.62 99.19 94.74 105.39     Notes:   (3) The 10 sectors contribute to our Weighted Composite Index according to weightings provided for their various sub-components by the United States Department of Commerce's National Income and Product Accounts ('NIPA') Tables (see our  FAQs  page for further explanations). In general, components in our Housing Sector have the highest weightings for durable goods in the NIPA matrix, while components in our Retail Sector contribute dynamically to many different line items in the weighting matrix, depending on specific goods involved.         Current Growth Index Values & Percentiles   Trailing 91, 183 and 365 Day Data Trailing Days: 91-Day 183-Day 365-Day % Growth (4) : -2.26% -2.56% -2.68% Percentiles (5) : 8.76% 4.17% 1.32%     Notes:   (4) The average net year-over-year growth percentage of the Weighted Composite Index over the past 91, 183 and 365 Days (the daily value for the equivalent of a real-time Consumer 'GDP' for the trailing moving 'quarter', 'six months' and 'year').   (5) The percentile of the above among all GDP quarters, six months and years since the spring of 1947 in the  BEA's GDP growth tables  (i.e., the percentage of all comparable time spans in the BEA's data  below  the values in the '% Growth' line above).     Commentary         December 20, 2013 - BEA Revises 3rd Quarter 2013 GDP Growth Upward Again to 4.12% Annual Rate: In their third and final estimate of the US GDP for the third quarter of 2013, the  Bureau of Economic Analysis  (BEA) reported that the economy was growing at a 4.12% annualized rate, up another 0.52% from the 3.60% growth rate previously reported for the third quarter and now up a full 1.64% from the second quarter. The improvement in the headline growth number came principally from consumption of consumer services and goods (adding a new additional 0.40% to the headline), and fixed investment (which improved its contribution by 0.08%). And the BEA's own "bottom line" growth rate for the economy (the "real final sales of domestic product") strengthened to a 2.45% annualized growth rate. Real annualized per capita disposable income is now reported to have risen by $200 per year during the third quarter and the personal savings rate decreased slightly to 4.9% (from 5.0% reported earlier). That savings rate had taken a 2.5% hit (a 38% reduction in the savings rate) during the first quarter as households struggled to absorb the 2% increase in FICA tax rates. The savings rate has now recovered more than a third of those first quarter cutbacks -- with the funding of those savings coming mostly through weaker growth in household expenditures. Finally, for this report the BEA assumed annualized net aggregate inflation of 1.98%. This deflator is reasonably close to those recorded by its sister agencies within the US Government. During the third quarter (i.e., from June to September) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) rose by 1.73% (annualized), and the price index published by the Billion Prices Project (BPP) rose at an annualized rate of 1.72%. As a reminder :  an overstatement of assumed inflation decreases the reported headline number -- and in this case the BEA's "deflator" slightly lowered the published headline rate. If the CPI-U had been used to convert the "nominal" GDP numbers into "real" numbers, the reported headline growth rate would have been a somewhat higher +4.46%, while using the BPP index (which arguably best reflects the experiences of the American consumer) would have generated an even higher +4.47% annualized rate. Among the notable items in the report : -- The contribution of consumer expenditures for goods to the headline number increased to 1.03% (up from 0.93% in the prior report). -- The contribution made by consumer services improved to 0.32% (up from 0.02% previously reported, but still down from 0.53% in the prior quarter). -- The growth rate contribution from private fixed investments strengthened to 0.89% (up from the 0.81% previously reported, but still down slightly from 0.96% in the prior quarter). -- Inventories were shown as about the same as previously thought, contributing +1.67% to the headline growth rate (still more than four times the +0.41% contribution during the prior quarter). -- A very slight contraction net governmental expenditures subtracted -0.01% from the headline number, with any reported growth occurring exclusively at state and local levels. -- Exports contributed 0.52% to the overall growth rate, up slightly from the 0.50% previously reported -- but still down materially from the 1.04% reported for the second quarter. -- And imports now subtracted -0.39% from the headline number (compared to -1.10% during the prior quarter). -- The annualized growth rate for the "real final sales of domestic product" increased to 2.45% (up from the 2.07% in the previous quarter). This is the BEA's "bottom line" measurement of the economy -- which remains substantially weaker than the headline number because of the ongoing buildup of inventories. -- And as mentioned above, real per-capita disposable income improved slightly and it is now reported to have increased by an annualized $200 from quarter to quarter. But that number is still down $317 per year relative to the fourth quarter of 2012 (before the FICA rates normalized).   The Numbers As a quick reminder, the classic definition of the GDP can be summarized with the following equation :     GDP = private consumption + gross private investment + government spending + (exports - imports) or, as it is commonly expressed in algebraic shorthand :   GDP = C + I + G + (X-M) In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :   GDP Components Table   Total GDP = C + I + G + (X-M) Annual $ (trillions) $16.9 = $11.5 + $2.7 + $3.1 + $-0.5 % of GDP 100.0% = 68.2% + 16.2% + 18.6% + -3.0% Contribution to GDP Growth % 4.12% = 1.35% + 2.56% + 0.08% + 0.13% The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :   Quarterly Changes in % Contributions to GDP   3Q-2013 2Q-2013 1Q-2013 4Q-2012 3Q-2012 2Q-2012 1Q-2012 4Q-2011 3Q-2011 2Q-2011 1Q-2011 4Q-2010 3Q-2010 2Q-2010 1Q-2010 Total GDP Growth 4.12% 2.48% 1.14% 0.14% 2.78% 1.20% 3.71% 4.86% 1.37% 3.19% -1.29% 2.80% 2.78% 3.91% 1.59% Consumer Goods 1.03% 0.71% 0.85% 0.85% 0.84% 0.50% 1.04% 1.14% 0.29% 0.05% 0.60% 1.66% 0.85% 1.14% 0.88% Consumer Services 0.32% 0.53% 0.69% 0.29% 0.31% 0.78% 0.94% 0.51% 1.14% 0.98% 0.81% 1.21% 1.02% 1.07% 0.54% Fixed Investment 0.89% 0.96% -0.23% 1.63% 0.39% 0.68% 1.21% 1.39% 1.96% 1.16% -0.05% 1.13% -0.04% 1.77% 0.11% Inventories 1.67% 0.41% 0.93% -2.00% 0.60% -0.91% 0.36% 2.73% -1.60% 0.72% -1.06% -1.64% 1.90% 1.09% 1.66% Government 0.08% -0.07% -0.82% -1.31% 0.67% 0.05% -0.28% -0.31% -0.52% -0.25% -1.61% -0.87% -0.07% 0.61% -0.63% Exports 0.52% 1.04% -0.18% 0.15% 0.05% 0.51% 0.56% 0.38% 0.92% 0.64% 0.48% 1.47% 1.27% 1.10% 0.73% Imports -0.39% -1.10% -0.10% 0.53% -0.08% -0.41% -0.12% -0.98% -0.82% -0.11% -0.46% -0.15% -2.15% -2.87% -1.70% Real Final Sales 2.45% 2.07% 0.21% 2.14% 2.18% 2.11% 3.35% 2.13% 2.97% 2.47% -0.23% 4.44% 0.88% 2.82% -0.07%   Summary For the past two months we have wondered how the BEA's latest growth estimates might impact the Federal Reserve's stance on monetary policy -- and particularly the duration and size of QE. At face value the new headline growth rate of 4.12% qualifies as "healthy economic growth," and places the US among the fastest growing developed countries. In fact, a growth rate above 4% would argue for far more than a modest $10 billion per month taper -- if not a return to more historically normal interest rates. Then why such a modest monetary response? The Federal Reserve clearly understands that the headline 4.12% is neither real nor sustainable : -- The vast majority of the economy (consumer spending -- nearly 70% of GDP) was growing at a paltry 1.35%. -- Over 40% of the headline number came from growing inventories. Conventional wisdom has this component reversing itself in future quarters -- reverting to a long term net zero gain or loss. In fact, since 2006 the average annualized real contribution from inventories has been essentially zero (-0.02%). Bloated inventories have a tendency to normalize, and in coming quarters we can expect production cuts to accomplish just that. -- Employment numbers, while technically improving, are still weak by historic "full employment" standards. And it is increasingly obvious that the modest improvement in the unemployment numbers is an artifact of a major deformation of the work force -- with fewer people choosing to look for work and more being forced to accept multiple part time jobs. -- Real per capita disposable income is still down -0.85% year-to-date. And if households continue to normalize their savings rates over the next few quarters (just as they have over the past two quarters while attempting to move back towards the savings level "comfort zone" seen prior to the January FICA increase), those increased savings will have to come from reduced spending. -- The aggregate numbers continue to mask an ongoing shift in income distribution :  although the  average  per capita income data has grown some 3.3% since October 2008 (per the BEA), the  median  household income has shrunk some 7% over that same time span (per  Sentier Research ). Thus whatever growth the BEA is reporting is not likely to shared by the vast majority of the electorate. Arguably, the "healthy economic growth" implied in the 4.12% headline growth rate might be considered a tad delusional. And apparently the Federal Reserve knows that only too well.