An Inside Look at the GDP Q1 Advance Estimate
Note: The charts in this commentary have been updated to include the Q1 2020 Advance Estimate released this morning.
The chart below is a way to visualize real GDP change since 2007 and 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:
Real gross domestic product (GDP) decreased at an annual rate of 4.8 percent in the first quarter of 2020 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2019, real GDP increased 2.1 percent.
The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 2). The "second" estimate for the first quarter, based on more complete data, will be released on May 28, 2020.
Coronavirus (COVID-19) Impact on the Advance First-Quarter 2020 GDP Estimate
The decline in first quarter GDP was, in part, due to the response to the spread of COVID-19, as governments issued "stay-at-home" orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.
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 -4.8%. The GDP in the chart above is the real GDP calculated to two decimal places.
Here is a chart of the latest estimates.
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 -5.26 of the -4.78 real GDP, down from the previous revision and the most negative contribution to Q1 GDP.
Gross Private Domestic Investment was a negative contributor.
Net Exports were positive in Q1.
Government Consumption Expenditures came in as a minor positive contributor.
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 69.8% is at its record high.