Preliminary GDP rose 2% SAAR after 0.5% in Q4. Final sales to private domestic purchasers — aka “core GDP” — grew 2.5% vs. 1.8% previous. In general, since the pandemic, core GDP has been less volatile than GDP.
Figure 1: GDP growth SAAR (blue), final sales to private domestic purchasers (red), both q/q annualized. Q2 observations are GDPNow estimates as of 5/1. Source: BEA, Atlanta Fed, and author’s calculations.
A statistical assessment indicates that 2000-2019, the standard deviation of q/q annualized growth rates of GDP was 0.023, while that for final sales to private domestic purchasers was 0.026. That pattern reversed post-Covid, 2022-2026Q1: 0.017 vs. 0.010. Hence, “core GDP” growth is indeed less volatile. (Note: I’ve conducted this exercise with the final revised vintage of data; it would probably be useful to replicate using real time data. I suspect that the same finding would be obtained.)
This comparison does not in and of itself prove that final sales to private domestic purchasers better predicts the trajectory of GDP. A quick and dirty assessment shows that over the same post-Covid period, a lag of log level final sales and contemporaneous final sales growth better predicts GDP growth than a lag level of GDP and contemporaneous final sales growth. The standard error of regression for the former is 0.0032, while that for the latter is 0.0040. This seems counterintuitive, but once one recalls that GDP incorporates volatile components like inventory accumulation/decumulation, exports that depend on foreign economic conditions, and (most importantly in recent times), imports, then this result does not seem so strange.
This is not an immutable fact; with a decrease in uncertainty in trade policy, it may very well be that the ranking changes over time. On the other hand, with elevated government (defense) spending in the offing, and foreign economic turmoil all but guaranteed, the ranking may stay in place for some time.
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