skip navigation

By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.


2Q GDP Data Surpass Expectations, but Presage Continued Low Inflation

2Q2019 real GDP growth exceeded most economists’ expectations, registering 2.1% growth, following a 3.1% reported performance in 1Q. This release also featured benchmark revisions to GDP data going back to 2014. The substantive changes to growth were mostly over the past three years and are summarized in the table.

As you can see, the quarterly pattern of growth now looks a lot different. From a bit longer-term perspective, average growth for the four quarters of 2017 was revised from 2.5% to 2.8%, while that for the four quarters of 2018 was revised from 3.0% to 2.5%. 1Q2019 growth was not revised, not surprising given that BEA has no more "background" data on 1Q now than it did before.

After getting a chance to review the details of 1Q2019 growth a few months ago, we came to the conclusion that 1Q growth was vastly overstated. The GDP data indicate extremely fast—9.1%—1Q growth in the goods sectors: manufacturing (excluding vehicles) and mining. Yet, Fed data for these sectors indicate negative output growth in 1Q. With this kind of discrepancy, it was hard to see the 1Q GDP data as credible.

We thought we would get some reversal of this anomaly in 2Q, but it didn’t happen. Today’s data indicate a 2.7% growth in goods sector GDP in 2Q, even while Fed data show further, slight declines in goods-sector output then. So, no reversal of the apparent overstatement of 1Q. We have to acknowledge the Street conclusions that reported GDP growth has exceeded expectations across the first half of the year, but we would at the least put an asterisk after that admission.

Meanwhile, the 2Q data continue a trend we discussed when the 1Q data were released in April. Despite the relatively favorable news on real growth, nominal GDP and all nominal spending measures continue to decelerate. As seen in the accompanying chart, all these measures show about 4% growth in nominal spending over the last year.

Forget about whether unemployment is below your perceptions of normal or whether real growth exceeds your expectations of sustainable. If nominal spending growth is not rapid nor accelerating, there simply is no room in the economy for inflation to accelerate (unless growth were to collapse, which would then put downward pressure on prices). The nominal spending data are proof positive that Fed efforts to accelerate growth and inflation are failing. In other words, today’s data continue to point to continued below-target inflation.

Real GDP Growth and Growth in Nominal Spending
Real GDP Growth and Growth in Nominal Spending
Source: Bureau of Economic Analysis. As of 30 Jun 19

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 43 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.