Visualizing GDP: An Inside Look at the Q2 Advance Estimate
Note: The charts in this commentary have been updated to include the Q2 2017 Advance Estimate released Friday.
The chart below is a way to visualize real GDP change since 2007. It uses a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics:
The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, and federal government spending that were partly offset by negative contributions from private residential fixed investment, private inventory investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased (table 2).
The estimates released today reflect the results of the annual update of the national income and product accounts (NIPAs) in conjunction with the "advance" estimate of GDP for the second quarter of 2017. The update covers the first quarter of 2014 through the first quarter of 2017. For more information, see information on the "2017 Annual Update" on BEA’s Web site. Additionally, the August Survey of Current Business will contain an article that describes the results in detail. [more here]
Let's take a closer look at the contributions of GDP of the four major subcomponents. The data source for this chart is the Excel file accompanying the BEA's latest GDP news release (see the links in the right column). Specifically, it uses Table 2: Contributions to Percent Change in Real Gross Domestic Product.
Note: The conventional practice is to round GDP to one decimal place, the latest at 2.6%. The GDP in the chart above is the real GDP calculated to two decimal places.
Over the time frame of this chart, the Personal Consumption Expenditures (PCE) component has shown the most consistent correlation with real GDP itself. When PCE has been positive, GDP has usually been positive, and vice versa. In the latest GDP data, the contribution of PCE came at 1.93 of the 2.57 real GDP, an increase over the previous quarter and a positive contribution to Q2 GDP.
Gross Private Domestic Investment was a small positive contributor.
Net Exports was positive in Q2, but was a fractional contribution.
Government Consumption Expenditures came in slightly positive.
Here is a look at the contribution changes over the past four quarters. The difference between the two rightmost columns was addressed in the BEA's GDP summary quoted above.
As for the role of Personal Consumption Expenditures (PCE) in GDP and how it has increased over time, here is a snapshot of the PCE-to-GDP ratio since the inception of quarterly GDP in 1947. To one decimal place, the latest ratio of 69.4% is fractionally below the record high. From a theoretical perspective, there is a point at which personal consumption as a percent of GDP can't really go any higher. We may be approaching that upper range.