Discussing GDP

Explaining GDP... The main macro event for Thursday was the Census Bureau's release of May Durable Goods Orders. This got ugly. The headline print of +0.1% monthly growth versus expectations for -0.1% looked okay, but as we know, when it comes to Durable Goods Orders, the headline number is usually the least important slice of information. Once transportation purchases are omitted, the result still landed at -0.1%, but that was versus expectations for +0.2%. Once defense purchases are omitted, the monthly print moves down to -0.2% from -0.5% in April and also below projections. The most important item, core capital goods orders, which excludes air and defense purchases, hit the tape at month over month "growth" of -0.6%. The street had been looking for something closer to +0.1%. Why this number is so important is that economists consider core capital goods orders to be a proxy for national business investment. This key measure of economic health has now printed in a state of monthly contraction for 8 of the past 12 months. As a result of this data, the Atlanta Fed revised its GDPNow model for the second quarter down to growth of 2.7% (q/q, SAAR) from growth of 3%. Atlanta will revise that model again later on Friday after adjusting for May Personal Income and May Personal Spending. Remember that Atlanta is by far the optimistic outlier among Q2 GDP models run by regional Fed districts. The other three districts all revise their models weekly. New York came into this week below 2%, while both St. Louis and Cleveland came into this week below 1%. St. Louis has run the most accurate model among the four, at least so far this year.

On Thursday... The Bureau of Economic Analysis also revised their estimate for Q1 GDP for the second and final time. The final print showed GDP growth of 1.4% (q/q, SAAR). Final Q1 GDI printed at growth of 1.3% (q/q, SAAR) which was nice to see, for those who don't read me often, this is something that I have been harping on. Understand that GDP (gross domestic product) and GDI (gross domestic income) are both measures of national output, both measure the same economic activity from a different perspective. which in theory should produce the same result. One is supposed to be a check upon the other. For Q1 2024, the two ran close together as they are supposed to. Much to my relief. When they do not run together, economists are supposed to average the two, as neither is considered preeminent. The St. Louis Fed, in a piece written by Michael T. Owyang in 2016 even suggested "In the end, however, it may be prudent to use both series (or perhaps a measurement combining both) to measure output." You and I both know that's not what happened in 2023, when GDP for the year printed at growth of 2.5% and GDI for the year hit the tape at growth of 0.4%. Financial media and politically biased economists only spoke of GDP and even scoffed at economists that had warned that the economy was not far from entering into recession in 2023. The fact is that by GDI, the economy barely grew at all in 2023 and the average of the two was 1.45%. You never heard about growth of 0.4% or that average of the two, did you? You only heard about growth of 2.5%, which was by far the most optimistic number the media had available.