U.S. GDP Data Deconstructed

July 28, 2022

As some had speculated, the first estimate of U.S. GDP in the second quarter posted a second consecutive quarter-on-quarter decline, this time of 0.9% after a 1.6% slide in the first quarter. If this had been accompanied by falling employment, which emphatically has not been the case, it would be a strong signal that the United States is in a recession. What is happening is that economic growth is losing steam more quickly than had been anticipated. Year-on-year growth fell to 1.6% in the spring from 3.5% in 1Q 2022, 5.5% in 4Q 2021, and 12.2% in the second quarter of 2021. Personal consumption expanded only 1.0% on quarter, down from 1.8% in 1Q. Business non-residential investment collapsed from a robust gain of 10.0% in 1Q to a dip of 0.1% last quarter. The highly interest-sensitive residential construction sector plunged 14.0% last quarter, and government spending (-1.9%) recorded its fourth quarterly drip in the past five quarters. Net exports enjoyed a robust bounce-back and augmented GDP growth by 1.4 percentage points, but a great amount of demand was met out of inventories rather than new production. The change in inventories exerted a 2.0 percentage point drag on GDP growth and was the single largest negative GDP driver.

The total U.S. personal consumption expenditure price deflator had the same underlying 7.1% quarterly rise annualized as it did in 1Q, but the core PCE deflator slowed to a 4.4% pace from 5.2%. Compared to the same quarter a year earlier, the PCE price deflator rose 4.8%, down from 5.2% in 1Q, while the overally PCE price index continued to crest, reaching 6.5%.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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