Monday, April 30, 2012

A Closer Look At the GDP Report

Let's take a deeper look at the latest GDP report, starting with the percentage change in GDP and the contribution of various components to this number.

First, we see that personal consumption expenditures (PCEs) added 2.2 to GDP -- or, put another way, PCEs accounted for all growth.  This is encouraging, as we need the US consumer to spend in order to grow.  Investment added some to growth.  Exports and imports were negligible.  Interestingly enough, we see that government spending subtracted from growth.

Looking at PCEs we see decent contributions from durable goods purchases.  This is good, as it indicates that people are willing to buy larger items and (most likely) in the process take on financing responsibilities.  Non-durables also added to growth as did service expenditures.  The only short-coming to this data series is that it could be higher.

What's interesting on the investment chart is the decrease in business investment.  CRE subtracted from growth, indicating there is still an over-supply on the market.  Equipment and software -- which had been growing strongly for the last few years -- added a paltry .13 to investment growth.  The good news here is the contribution from residential real estate, which added a little over half too total investment growth.  Should this pace continue, we could get a nice bump in GDP because of the multiplier inherent in residential investment.

Exports/imports were negligible.

Government spending subtracted from growth, with the biggest drops from from national defense spending and state and local spending.

So, here are the good and bad developments.

The good

People are sill spending
Residential investment may be picking up
Inventories are being restocked
Imports aren't killing growth

The Bad

Business investment dropped
Government spending is subtracting from growth
Ideally, we'd like to see higher PCEs

Shorter version: this is OK, but not great by any stretch of the imagination.