GDP report shows debt-fueled spending keeping economy afloat

Wanted to say a few things about yesterday's first look at GDP for the 2nd quarter of 2019.

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the second quarter of 2019 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent….

The deceleration in real GDP in the second quarter reflected downturns in inventory investment, exports, and nonresidential fixed investment.

These downturns were partly offset by accelerations in PCE and federal government spending.

Those two “accelerations” in consumption and government spending added 3.7% to GDP for Q2, but everything else declined by a combined 1.6%, and only half of that was the reduction of bloated inventories from prior quarters.

Another fun fact:
Q2 Growth was 100% dependent on Consumer and Government spending. Investment, Inventories, and Trade were all negative factors. pic.twitter.com/p4LSGJpUg1

— Chad Wigmore (@ChadWigmore) July 26, 2019

That’s not what the GOP Tax Scam was supposed to do, especially the fact that business spending went down last quarter.

Bottom line on Q2 GDP: Business investment was terrible. It came in at -0.6%, the worst since early 2016.

The US consumer is powering this economy. #economy pic.twitter.com/y2arOltVXH

— Heather Long (@byHeatherLong) July 26, 2019

The fall in exports is especially noteworthy. Real US exports peaked in Q2 2018 at $2.56 trillion (in 2012 dollars) - around the time Trump’s trade wars began.

Flash forward to this report, and let’s see what we have over the last year.

Change in real GDP, US trade. Q2 2019 vs Q2 2018
Exports
Q2 2018 $2,559.9 billion
Q2 2019 $2,520.5 billion (-$39.4 billion)

Imports
Q2 2018 $3,410.4 billion
Q2 2019 $3,499.2 billion (+$88.8 billion)

Net exports
Q2 2018 -$850.5 billion
Q2 2019 -$978.7 billion (-$128.2 billion)

Fewer exports and a lot more imports. Real US fixed investment (which would go up if more things were being made and consumed domestically) went up $147.3 billion (+4.5%). That sounds like a lot, but is actually less than the 5.2% growth in the 12 months before Q2 2018. So it doesn’t like the tariffs have been very effective up to this point.

In addition, the GDP report featured revisions to the last 5 years, and it turns out things weren’t as strong last year as we originally were told.

The updated Commerce Department data also showed growth in the second and third quarters of last year was not as robust as previously estimated, and the economy grew much more slowly in the fourth quarter than had been reported in March.

Still, the economy’s performance in 2018 was an acceleration from the 2.4% growth notched in 2017. It matched the performance in 2015 during the Obama administration. The economy grew 2.8% in the 12 months through the fourth quarter of 2017.

The data also showed growth in consumer spending peaking in the second quarter and decelerating sharply in the final three months of 2018.

Growth in the first quarter of 2018 was revised up to a 2.5% annualized rate from 2.2%. Second-quarter growth, which prompted Trump’s mission accomplished declaration, was cut to a 3.5% pace from a 4.2% rate. Growth in the third quarter was slashed to a 2.9% rate from a 3.4% pace. Fourth-quarter GDP growth was lowered to a 1.1% pace from a 2.2% rate.

Here’s a particularly interesting revision for the previous years – (pre-tax) corporate profits were much less than originally reported.

Corporate profits were revised up $1.4 billion, or 0.1 percent, for 2014, was revised up $4.3 billion, or 0.2 percent, for 2015, was revised down $23.5 billion, or 1.2 percent, for 2016, was revised down $93.3 billion, or 4.4 percent, for 2017, and was revised down $188.1 billion, or 8.3 percent, for 2018.

Pre-tax profits still rose by 3.4% in 2018, but it wasn’t the blowout growth we were told previously. Those numbers were also inflated for Wall Street as taxes as corporate income dropped by 31.2% in 2018, which means that annual post-tax profits rose by $168.4 billion (10.0%) last year.

So what we're finding with this GDP report is that the economy is slowing, but still growing due to heavy (debt-based) spending by consumers and government. And that 2017 and 2018 had a rebound of two-year growth...back to the annual levels of 2014 and 2015, and the Tax Scam seems to have done little to help the economy beyond that.

And now we're in the hangover phase of the Tax Scam - except that the newest debt ceiling deal allows for even higher spending and deficits over the next 2 years! Just long enough to carry past the 2020 elections. What a coincidence!

Goes to show that "fiscally conservative" Republicans only care about lowering spending and reducing deficits when they're out of power and can limit the economy to damage the electoral prospects of the in-power Democrats. Wonder what GOPs would say if Dems in the House hardballed them on the budget that has to be passed in two months, and had to justify deficit-exploding stimulus measures that have merely staved off a flatlining of growth? Maybe we should find out.