This is a Rasputin Economy
The consumer is the economy.
Today’s Read Time: 6 minutes
This week, we’re talkin’ a smokin’ hot US GDP number, steady consumer data, government shutdown, and I do a deep dive into the Bureau of Economic Analysis and how they arrive at the GDP number we all follow. Spoiler, data collection methodology.
Let’s get into it.
Today’s Interest Rate: 6.38%
(☝️.03% from this time last week, 30-yr mortgage)
The Weekly 3 in News:
Refinances are boomlet’ing. Folks who purchased property recently in the 7-8% range are taking advantage of lower mortgage rates, now double last year’s refi number (ResiClub).
High Credit Scores Dominating New Mortgages. The majority of FICO credit scores are above 740. The average homeowner is the most financially stable they have been in decades. This is why foreclosures are at historic lows (HousingWire).
Mom-and-pop landlords have always dominated the single-family rental market, NOT Wall Street. 89.6% of single-family rentals are owned by landlords who hold between 1 and 5 properties. Don’t let salacious headlines fool you (ResiClub).
U.S. Economy is Going Gangbusters: 3.8%
The second quarter of this year was just revised up to 3.8%, which is the best second quarter since Q2 2021, and the best overall quarter since Q3 2023.
This despite:
Labor market fears,
Unemployment trending higher,
Elevated interest rates for 3+ years,
Immigration slowdown,
Policy changes amidst government partisanship disfunction, and
Seemingly weekly tariff announcements. Can we not tax cabinets? I’m starting a remodel on my next rental. If construction is more expensive all I’m going to do is pass that cost on to my tenant, which I would really prefer not to do unless I have to. (Although, as I’ve said before, tariffs dont seem to be having the material effect on prices like all the pundits thought).
So for now, Boom! Let that economy cook!
Finally, a revision in the economic data that is not totally horrible!
This is a very positive number, up .5% from expectations.
Reacting live, CNBC’s Rick Santelli was a bit surprised, saying, “I’m a bit shocked to be honest.”
What Changed?
Much of this revision was due to an unexpected acceleration in consumer spending. Economists were caught offside, trying to predict the effects of tariff policy, and thought we would see a slowdown of the consumer in the face of higher prices. This expectation has yet to materialize.
The major contributors? There was actually broad participation from much of industry.
Hot Economy, Hot Income Growth and Sticky Inflation
In this report, personal consumption data from the consumer gave us insight into the health of the economy, and, shocker, folks be spendin’!
An important fact: consumer spending is ~2/3 of the US GDP. In other words, the consumer is the economy.
Personal consumption (PCE) spending was up 0.3% gain for the month, putting the annual PCE inflation at 2.7%, and up 2.9% (up .2%), excluding volatile food and energy prices.
And while all these inflation numbers were in line with consensus forecasts, spending and income numbers were slightly higher than expected.
Good! Although the trend is toward softer income growth, with stagnant inflation.
What are consumers spending on? All kinds of fun stuff.
Government Shutdown: Lowered Expectations
The Donkeys and Elephants are fighting again in DC and may not come to an agreement to fund the government for the next fiscal year (which starts October 1st).
Ignoring the stupidity of this, it is apropos to our discussion.
Why?
During a government shutdown (the government doesn’t actually shut down it just runs in “safe mode” funds for critical “essential” services continue) the BLS and BEA will be two of the agencies that will suspend operations. This includes halting the release of scheduled economic data reports. This means reports like the monthly jobs, inflation and GDP numbers would be delayed until funding is restored.
This is the king of lowered expectations Ala the 1999 MADtv sketch (classic!).
Cool. Cool…
And GDP Estimates are Now Higher for 2025.
Estimates for US Q3 GDP by the Atlanta Fed are up too, GDP is now expected to be 3.9%, up from 3.3% in their last estimate.
Gangbusters!
The culprit? You guessed it, as we just outlined, the US consumer is still spending normally, and is remaining much healthier than expected amidst a weakening labor market (which is mainly young folks, with less $ to burn) and tariff/trade policy not affecting prices as was expected. The Atlanta Fed now sees real personal consumption expenditures to be up next quarter, from 2.7% to a healthy 3.4%.
Good!
But this is just an estimate; we will see what comes to fruition.
In fact, the Q2 GDP number above? That was the third estimate by the BEA.
Wait what?
Yep, estimate #3. And while that was the final monthly revision, there will be several more revisions. Why? We live in a world of surveys, estimates, and assumptions by government, and less hard/actual data from industry.
How the Bureau of Economic Analysis Actually Works
Now, I've been picking on the Bureau of Labor Statistics over at the Department of Labor, these last few months. So I thought, time to turn my ire to the Department of Commerce and its Bureau of Economic Analysis.
Let’s go a little deeper into what they are actually doing over there to get these GDP numbers.
The BEA is responsible for calculating and releasing estimates of GDP, a measure of the total value of goods and services produced in the U.S. economy. These estimates are not fixed; instead, they evolve over time as more data becomes available from various sources, such as surveys, tax records, and administrative data. This iterative process is an effort to improve to estimate’s approximation of what is actually happening in the economy, but also means the “final” number can change multiple times.
It often does.
The BEA releases 3 quarterly estimates for each quarter’s GDP: the advance estimate (typically about a month after the quarter ends), the second estimate (two months after), and the third estimate (roughly three months after).
After that, GDP figures are subject to further revisions through annual updates (usually in July of the following year) and comprehensive revisions (every five years or so), which incorporate more complete source data. Oddly, these aren’t counted as additional “estimates,” though, so the core number is 3.
Beyond the Quarterly Estimates: Ongoing Revisions
After the third estimate, GDP data undergoes further updates through 2 main types of revisions, which can alter the numbers multiple times over many years.
Annual Revisions: These occur once a year, typically in July (about 15-16 months after an initial estimate). They revise estimates for the previous three calendar years by incorporating more complete annual source data, such as detailed business surveys (yes, more surveys…), tax returns, and census data that weren’t available earlier. These revisions can be substantial, changing growth rates by 0.5% or more for a quarter.
Comprehensive (aka Benchmark) Revisions: These are less frequent, happening roughly every 5 years (e.g., the last major one was in 2018, with another in 2023). They involve broader changes, such as updating the base year for price indexes, incorporating new economic census data, revising methodologies (ie, their guess), or even reclassifying industries to align with international standards like the North American Industry Classification System (NAICS). These can affect GDP estimates going back decades and are designed to improve long-term accuracy and comparability.
Annnnnnd, in some (more rare) cases, there might also be “special” or out-of-cycle revisions if significant new data emerges or, the methodology changes, which happens.
When has the BEA Changed Methodology?
Fairly frequently, actually. I did not know this.
The BEA periodically conducts “Comprehensive Revisions” to the National Income and Product Accounts (NIPAs), which include GDP calculations. These revisions, typically every 5 years, incorporate new source data, definitional changes, methodological improvements, and presentational updates to enhance accuracy, consistency, and international comparability.
The BEA has performed 12 major overhauls of its methodology since WW2, including in 1958, 1965, 1976, 1985, 1991, 1996, 1999, 2003, 2009, 2013, 2018, and most recently in 2023, where we “introduced new PCE price indexes excluding food, energy, and housing (and services excluding energy and housing.”
Why So Many Revisions?
The BEA’s estimates use incomplete data in an effort to inform policymakers, businesses, and the public quickly, but as more information trickles in, or is lagging or is from a survey that was underrepresented (from sources like the Census Bureau or IRS), revisions refine the picture. It's important to realize that the estimates are rarely correct, not the other way around.
On average:
Revisions from advance to second estimate: About ±0.5 percentage points.
From second to third: Smaller, around ±0.3 points.
Annual revisions: Can be larger, up to ±1.0 point or more for some components.
Wow.
My Concern.
Frankly, I have to call balls and strikes here, including when it’s positive.
This Q2 GDP reading is great news. But it’s not a final number.
Ever since the insane 2024-2025 BLS labor and employment data revisions (you can read my rants on that here), I remain highly skeptical of these bureau estimates.
And will be until further notice.
Instead, I view all of this through an investment kaleidoscope. They are helpful in showing trends and momentum of the economy / US consumer. The problem is this data is often lagging at best, and plain wrong at worst, especially given the high use of surveys and assumptions rather than actual/measurable data.
This data is signal, not fact. We should treat it that way.
For example, remember the other week when I said it seemed like there was an odd anomaly in Texas’ unemployment numbers, which spiked the overall US unemployment number?
Well, it turns out it was fraud.
Crazy town.
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Ok, back to business.
