The Numbers (as Revised)
GDP = private consumption + gross private investment + government spending + (exports − imports)
GDP = C + I + G + (X-M)
GDP Components Table
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 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 Finals Sales of Domestic Product" and listed the quarters in columns with the most current to the left:
Quarterly Changes in % Contributions to GDP
This report continues a tendency of the BEA to revise their previously published data downwards, and it brings their "final" reading for the economy's annualized growth rate for the third quarter of 2011 (now reportedly 1.81%) far closer to the anemic data for the first two quarters of 2011 (0.36% and 1.34% respectively) than to the highly optimistic 2.46% headline that they generated just two months ago. This report, even if taken at face value, is sobering for a number of reasons:
-- A headline number of 1.81% is disappointing given that we are now six quarters into a "recovery," when numbers closer to 4% should be expected.
-- Federal fiscal spending continued to sustain the headline number, with defense spending contributing more than a quarter of a percent. Any successful efforts to restrain the deficit will have direct and immediate impact on these numbers.
-- The contracting per-capita disposable income explains the public's mood, even if consumers are seemingly "self-medicating" their psyches through increased (and perhaps ill-considered) holiday spending.
-- When compared to earlier data for the same quarter, this set of revisions again tells us that the BEA has been chronically misreading the economy with an optimistic bias (best exemplified by the massive downward revisions to the numbers for the "Great Recession" this past July). If the Federal Reserve continues to believe that it can and should "engineer" the economy for happier outcomes, we hope that their tinkering is informed by better and more timely data than that provided by the BEA.
Given the recent tendencies of the BEA to eventually revise weak data even lower -- and especially in such cases as the first two quarters of 2011, when they have used badly lagging deflaters -- we see no reason to believe that the actual U.S. economy during 2011 experienced any meaningful growth. Coupled with shrinking per-capita "real" disposable income and the likelihood of curtailed defense spending, we find the prospects for a happy new year to be far less than we might have wished.