The Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Thursday included an annual revision over the past 5 years of GDP releases, revising previously published data from the first quarter of 2015 through the first quarter of 2020, which on net indicated that economic growth over the period from 2014 to 2019 was at a 2.3% annual rate, the same net growth over that period that was previously published.  However, that was as the 5 year annual growth rate of personal consumption was revised down from 2.8% to 2.7%, the 5 year annual growth rate of private investment was revised up from 2.2% to 2.5%, the annual growth rate of exports was revised from 1.1% to 1.3%, the annual growth rate of imports was revised from 2.6% to 2.5%, and the growth of government investment and consumption was revised to a 1.9% rate from the 1.8% rate that had been indicated by GDP reports prior to this revision...

This report also showed that the GDP growth rate for 2015 was revised from the previously reported 2.9% to 3.1%; that the growth rate for 2016 was revised from the previously reported 1.6% to 1.7%, that the GDP growth rate for 2017 was revised from the previously reported 2.4% to 2.3%, that the growth rate of 2018 was revised from the previously reported 2.9% to 3.0%, and that the growth rate for 2019 was revised from the previously reported 2.3% to 2.2%. In addition, there was considerable revision to the growth rates on a quarter to quarter basis; for instance, for 2019, the growth rate of the 1st quarter was revised from the previously reported 3.1% rate to a 2.9% rate, the growth rate of the 2nd quarter was revised from the previously reported 2.0% rate to a 1.5% rate, the growth rate of the 3rd quarter was revised from the previously reported 2.1% rate to a 2.6% rate, and the growth rate of the 4th quarter of 2019 was revised from the previously reported 2.1% rate to a 2.4% rate...

The growth rate of first quarter of 2020, which had been reported at minus 5.0% when we reviewed it a month ago, remained at the same rate as previously published, as downward revisions to personal consumption, net exports, and private inventory investment were offset by upward revisions to fixed private investment and federal government spending and to state and local government spending. The first quarter change in personal consumption was revised from minus 6.8% to minus 6.9%, the first quarter change in private investment was revised from minus 10.2% to minus 9.0%, the first quarter change in exports was revised from a minus 9.0% rate to a minus 9.5% rate, the first quarter change in imports was revised from a minus 15.7% rate to a minus 15.0% rate, the first quarter growth rate of the federal government was revised to +1.6% from +1.1%, while the growth rate of state and local governments was revised from +0.5% to +1.1%.. Ffirst quarter contraction rate of current dollar spending was revised from a 3.47% rate to a 3.38% rate, while the GDP deflator for the first quarter was revised from +1.3% to +1.4%...

All those revisions should leave you with the sense to take this initial advance estimate of 2nd quarter growth, which was released on Thursday with some of June's data still not reported, with a grain of salt...the BEA cautions that the 2nd quarter source data is incomplete and also subject to revisions, which have historically averaged +/-0.6% in either direction from the advance to the third estimate, and +/- 1.2% from the advance estimate to the final reading. Note that June construction and non-durables inventory data have yet to be reported, and that information on the assumptions used for those reports and unavailable source data for this advance estimate is explained in a technical note that is posted with the news release, and references an Excel file with key source data and assumptions...

The Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US shrank at a record 32.9% annual rate from the output level of the 1st quarter of this year, which we have just seen already shrunk at a 5.0% rate from the end of 2019...the contraction in 2nd quarter growth was due to greater shrinkage of personal spending, fixed investment, inventories, and exports, which was partially offset by an increase in federal government outlays and the shrinkage of imports, which is a positive for GDP.  In current dollars, our second quarter GDP shrunk at a 34.34% annual rate, decreasing from what would work out to be a $21,561.1 billion a year rate in the 1st quarter to a $19,408.8 billion annual rate in the 2nd quarter, with the headline 32.9% annualized rate of decrease in real output arrived at after annualized GDP inflation adjustments averaging minus 1.8% were computed and applied to the current dollar change of the components, which we hope to illustrate below...

While we cover the details on the 2nd quarter, remember that the GDP news release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit more than 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes now chained from 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts.   For our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 1st estimate of 2nd quarter GDP, which we find linked to on the BEA's GDP page, which also links to just the tables on Excel and other technical notes.  Specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually since 2017 and quarterly since the 3rd quarter of 2016, table 2, which shows the contribution of each of the components to the GDP figures for those months and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP  components; and table 4, which shows the change in the price indexes for each of the GDP components.

Personal consumption expenditures (PCE), which normally accounts for roughly 70% of GDP, shrunk at a 35.8% rate in current dollars in the 2nd quarter, down from the first quarter’s spending drop at a revised 6.6% rate, but once the inflation adjustments were made with the PCE price indices for each quarter, real PCE shrunk at a 34.6% rate in the 2nd quarter after shrinking at 6.9% rate in the first.  Consumer spending for durable goods shrunk at a 5.8% rate on lower spending for furniture and durables other than motor vehicles and recreational goods and vehicles, but since the weighted prices for those durable goods fell at a 4.5% rate, the real output of durable goods represented by that spending only decreased at a 1.4% rate.  At the same time, current dollar consumer spending for non durable goods fell at 21.6% rate, but the PCE price index for non-durable goods fell by 6.9%, meaning the real contraction in consumption of non durable goods was at a 15.9% rate.  Meanwhile, the annualized 43.4% current dollar drop in personal spending for services was further reduced by a 0.2% PCE services deflator to show the real 2nd quarter contraction in services was at a 43.5% rate.  Thus, with contraction in all components of personal consumption expenditures, the real decrease in output of consumer durable goods subtracted 0.04 percentage points from the change in GDP, the real drop in non-durable goods output for consumers subtracted 2.16 percentage points from 2nd quarter GDP growth, and the real drop in services provided to consumers subtracted 22.93 percentage points from the change in 2nd quarter GDP...

Just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the price indexes shown in table 4 of the GDP pdf to yield the real change in the output of goods or services.  Hence, real gross private domestic investment, which had contracted at a 9.0% annual rate in the 1st quarter as investment in inventories tanked, shrank at a 49.0% annual rate in the 2nd quarter, as both fixed investment and inventory growth contracted.  Real non residential fixed investment shrank at a 27.0% annual rate as real investment in non-residential structures fell at a 34.9% rate, real investment in equipment fell at a 37.7% rate, and investment in intellectual property fell at 7.2% rate.    Hence, investment in real non residential fixed investment subtracted 3.62 percentage points from the growth in 2nd quarter GDP as real investment in non-residential structures subtracted 1.16 percentage points, real investment in equipment subtracted 2.13 percentage points from the change in GDP, and investment in intellectual property subtracted 0.33 percentage points from the change in GDP.  In addition, residential investment fell at a 38.7% rate and subtracted 1.78 percentage points from the 2nd quarter's GDP, leaving the total fixed investment contribution at minus 5.38 percentage points.  For an easy to read table as to what's included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3...

Meanwhile, further shrinkage of inventories also reduced gross investment and hence GDP, as real private inventories fell by an inflation adjusted $315.5 billion in the quarter, down from the revised $80.9 billion of inflation adjusted inventory shrinkage now reported for the first quarter, and as a result the $234.6 billion reduction in real inventory growth subtracted 3.98 percentage points from the 2nd quarter's growth rate, after an inflation adjusted $79.9 billion decrease in inventory growth in the 1st quarter had subtracted 1.34 percentage points from that quarter's GDP growth rate.  However, smaller inventories indicate that less of the goods produced during the quarter were left "sitting on the shelf”, so their quarter over quarter decrease by $234.6 billion meant that real final sales of GDP were relatively greater by that much, and hence real final sales of GDP fell at a 29.3% rate in the 2nd quarter, after real final sales had decreased at a 3.4% rate in the 1st quarter, when the smaller decrease in inventories had a smaller impact on real final sales of GDP…

After adjustment for much lower export and import prices, both real exports and real imports decreased in the 2nd quarter, but imports fell by more.  Our real exports of goods and services decreased at a 64.1% rate in the second quarter, after decreasing at a 9.5% rate in the 1st quarter, while our real imports fell at a 53.4% rate in the 2nd quarter after falling at a 15.0% rate in the 1st quarter.  As you'll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here.. Thus the 2nd quarter decrease in real exports subtracted 9.38 percentage points from 2nd quarter GDP, after lower exports had subtracted 1.12 percentage points from first quarter GDP.  At the same time, since imports subtract from GDP, their decrease at a 53.4% rate conversely added 10.06 percentage points to 2nd quarter GDP, after the decrease in first quarter imports had added 2.25 percentage points to that quarter's growth.  Aas a result, our improving trade balance added a rounded total of 0.68 percentage points to 2nd quarter GDP growth, after an improved trade deficit had added 1.13 percentage points to GDP growth in the first quarter..

Finally, real consumption and investment by branches of government rose at a 2.7% annual rate in the 2nd quarter, after increasing at a 1.3% rate in the first quarter, as federal government consumption and investment grew at a 17.4% rate while state and local consumption and investment shrunk at a 5.6% rate. Inflation adjusted federal spending for defense rose at a 4.1% rate and that added 0.08 percentage points to 2nd quarter GDP growth, while real non-defense federal consumption and investment grew at a 39.7% rate and added 1.03 percentage points to GDP. Note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services.  Meanwhile, state and local government investment and consumption expenditures, which fell at a 5.6% annual rate, subtracted 0.40 percentage points from the quarter's growth rate, as a decrease in real state and local investment at a 2.4% rate accounted for 10% of the decrease...

(Note: the above was excerpted from my weekly economic synopsis at Marketwatch 666)