If is official. It happened. First quarter 2015 real GDP just went negative with a -0.7% contraction. Remember folks, two consecutive quarters of negative growth can make up an official recession. In reality the revision is a one percentage point slide. Psychologically speaking, contraction isn't too swift as it often pricks bubble minds that blow hot air all over as they deflate. The reason for the negative revision is imports. This is no surprise as imports are often under estimated in the advance report since data hasn't come in yet and our government is in perpetual denial on how trade deficits stunt economic growth. Investment was revised significantly downward as well. Bottom line, this is not a report to ignore.
As a reminder, GDP is made up of: where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*. GDP in this overview, unless explicitly stated otherwise, refers to real GDP. Real GDP is in chained 2009 dollars.
The below table shows the GDP component revision comparison from the advance report. Lest we forget, trade data is always delayed and we believe imports will be revised much higher, potentially causing a Q1 GDP contraction.
|Comparison of Q1 2015 Advance Estimate and 1st Revision GDP Components
Q1 2015 Advance
Q1 2015 Revision
Tthe below table shows the GDP component comparison in percentage point spread from Q4 to Q1. As we can see consumer spending really dropped in Q1 as did exports.
|Comparison of Q1 2015 and Q4 2014 GDP Components
Consumer spending, C is the engine of the economy so this is quite the bad sign in terms of demand. Durable goods was a 0.10 percentage point contribution with motor vehicles & parts being -0.10 percentage points. Consumer spending services added 1 13 percentage points with health care by itself adding 0.60 percentage points to GDP. Health care was more than housing. Spending to house oneself and corresponding utilities was a 0.67 percentage point GDP contribution. Below is a percentage change graph in real consumer spending going back to 2000.
Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon). When the economy is doing poorly the first thing to go is spending on durables.
Imports and Exports, M & X slammed Q1 GDP with a -1.90 percentage point subtraction. That's almost two percentage points just due to the trade deficit and America is supposedly importing a lot less oil these days. Our elected representatives continue to ignore the trade deficit and pass even more corporate written bad trade deals which leave the economy, American worker and consumer in the dust.
Government spending, G contributed –0.20 percentage points to Q1 GDP. State and local governments lack of spending took off -0.21 real GDP percentage points and they contracted -0.27 percentage points in investment, ouch. No repaired and safe bridges coming to a road near you anytime soon one would guess from these figures.
Investment, I is made up of fixed investment and changes to private inventories. Investment contributed a measly 0.12 percentage points to Q1 GDP. The change in private inventories alone was revised significantly down, from 0.74 to a 0.33 percentage point contribution. Changes in inventories is the only thing which saved investment that quarter. Below are the change in real private inventories and the next graph is the change in that value from the previous quarter.
Fixed investment is residential and nonresidential and was revised to -0.21 from a -0.40 percentage point GDP contraction. Nonresidential structures simply imploded with a -0.67 individual percentage point contraction. Transportation equipment gave a percentage point contribution of 0.22. Intellectual property products was revised down to 0.14 from 0.30 percentage points, but one must wonder how that is when so often intellectual property is parked in special purpose vehicles located in the Caymans and other tax havens.
Residential fixed investment was revised up to 0.16 from 0.04 percentage points to Q1 GDP. The below graph of residential fixed investment really shows the housing bubble and despite housing prices rise, notice the lack of economic growth contribution of residential fixed investment.
Nominal GDP: In current dollars, not adjusted for prices, of the U.S. output,was $17,665.0 billion, a -0.9% annualized decrease from Q4. In Q4, current dollar GDP increased 2.4%.
Real final sales of domestic product is GDP - inventories change. This figures gives a feel for real demand in the economy. This is because while private inventories represent economic activity, the stuff is sitting on the shelf, it's not demanded or sold. Real final sales contracted -1.1%. This is the worst bit of news in the Q1 GDP report.
Gross domestic purchases are what U.S. consumers bought no matter whether it was made in Ohio or China. It's defined as GDP plus imports and minus exports or using our above equation: where P = Real gross domestic purchases. Real gross domestic purchases increased 1.1% in Q1. Exports are subtracted off because they are not available for purchase by Americans, but imports, of course are available for purchase in the U.S. When gross domestic purchases exceed GDP, that's actually bad news, it means America is buying imports instead of goods made domestically.
The price index for gross domestic purchases plunged -1.6% on oil. Without food and energy considered, the core price index increased 0.2%. Below is the price index for gross domestic purchases.
GNP - Gross National Product: Real gross national product, GNP, is the goods and services produced by the labor and property supplied by U.S. residents.
GNP = GDP + (Income receipts from the rest of the world) - (Income payments to the rest of the world)
Real GNP declined by -1.4% for Q1. In Q4 GNP increased 1.4%. GNP includes, whereas GDP excludes, net income from the rest of the world. GNP increases beyond GDP if Americans made out like bandits from foreign investments more than foreigners cashed in on investments within the U.S. borders.
GDI - Gross Domestic Income: Gross Domestic Income is all income from within the borders of a nation and should normally equal GDP. GDI is wages, profits & taxes minus subsidies. Real GDI was 1.4% in Q1. Q4 GDI was a 3.7% increase. The BEA says GDI measures the economic output as the costs incurred as well as incomes earned in the production of GDP. The BEA also states GDI can have statistical discrepancy over short time periods.
Below are the revised percentage changes of Q1 2015 GDP components, from Q4. Here we see that exports truly imploded from last quarter. There is a difference between percentage change and percentage point change. Point change adds up to the total GDP percentage change and is reported above. The below is the individual quarterly percentage change, against themselves, of each component which makes up overall GDP. Additionally these changes are seasonally adjusted and reported by the BEA in annualized format.
Q1 2015 GDP Component Percentage Change
|Percentage Change from Q4
Overall, this is just a horrific report. We'll be looking very closely at how Q2 is shaping up but so far, it ain't too swank. This report shows simply very weak economic demand.