A brief summary of the main points of the provisional GDP data plus some standout longer term analytics:
Personal consumption expenditure growth was relatively weak though buoyed by relatively strong demand for cars and recreational vehicles (addressed below). Service sector growth showed a second successive quarter of weakness (addressed below). Inventory growth fell contributing negatively to growth; industrial equipment and transportation equipment showed relative strength. Residential property investment showed weak growth. Following 2 quarters of negative growth contributions, net exports, on the back of declining imports, provided some 36% of provisional quarterly growth. Government expenditure rose principally due to large national defense expenditure (largest increase since Q2 2009). Last time I looked at growth dynamics auto production was key in terms of new orders, exports and consumer loan growth and I will need to check on this later.
But to the longer term analytics:
Consumption, in particular over consumption in many of the developed western economies is a theme running through much of my thought:…consumption drives economic growth and personal consumption expenditures in particular. I personally feel that we have not fully adjusted to a lower PCE component of GDP growth in the US and that the late 1990s to 2007 represented a period of excessive relative consumption for a number of reasons.
The following chart shows the accumulated differential between nominal PCE and GDP and nominal Capital Equipment investment and GDP since 1948. We clearly see a divergence developing between consumption and GDP in the early 1990s and markedly post 1997….we also see a much more significant divergence between PCE and capital equipment expenditure post 2000.
Expenditure on motor vehicles and part and recreational vehicles has also been markedly high as a % of personal consumption expenditures…this is notable given growth in auto debt and as I have said for some time may also be driving the recent recovery in the capex component. The following chart shows such expenditures as a % of PCE over 3 year rolling periods over 2 different time frames. Such expenditure is significant of late.
Services expenditure has dropped over the last 2 quarters, but this may be due somewhat to a large Q1 figure…
And as noted before capital equipment expenditure is rising, although I express concern at the possible source….auto related, again?
Non durable goods expenditure remains weak….while financial services expenditure is more supportive