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mining tracking data for an understanding of what American consumers were doing yesterday."

     
  November 25, 2020 - BEA Revises Third Quarter 2020 GDP Growth Downward to 33.07%:

In their second estimate of the US GDP for the third quarter of 2020, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +33.07% annual rate, down -0.02 percentage points (pp) from their previous estimate but still up 64.46pp from the prior quarter.

There are no material revisions in this report. Some of the growth in consumer spending was shifted from services to goods, while reducing the overall consumer spending by -0.06pp. Growth in commercial and private fixed investments was adjusted upward by +0.27pp, but that was offset by downward adjustments to inventories, governmental spending and imports.

In an earlier release, annualized household disposable income was revised $202 higher than in the previous report, and the household savings rate was reported to be 16.1%, up 0.3pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 3.71%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 4.74%. If the BEA's nominal data was deflated using CPI-U inflation information the headline growth number would have been 33.27%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 9.49% rate, up 0.25pp from the previous estimate and up 11.55pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 15.73%, down -0.31pp from the previous report and up 37.68pp from the prior quarter. The combined consumer contribution to the headline number was 25.22%, down -0.06pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to 5.23%, up 0.27pp from the previous report and up 10.50pp from the prior quarter.

-- Inventories added 6.55% to the headline number, down -0.07pp from the previous report and up 10.05pp from the prior quarter. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity pricing or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

-- The contribution to the headline from governmental spending was revised to -0.76%, down -0.08pp from the previous report and down -1.53pp from the prior quarter.

-- The contribution from exports was revised to 4.95%, up 0.05pp from the previous report and up 14.46pp from the prior quarter.

-- Imports subtracted -8.12% annualized 'growth' from the headline number, down -0.13pp from the previous report and down -18.25pp from the prior quarter. Foreign trade contributed a net -3.17pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 26.52%, up 0.05pp from the previous report and up 54.41pp from the prior quarter. This is the BEA's 'bottom line' measurement of the economy (and it excludes the inventory data).

-- As mentioned above, real per-capita annualized disposable income was revised $202 higher than in the previous estimate. The annualized household savings rate was 16.1% (up 0.3pp from the previous report). In the 49 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.81%.



The Numbers, As Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

GDP = private consumption + gross private investment + government spending + (exports - imports)


or, as it is commonly expressed in algebraic shorthand :

GDP = C + I + G + (X-M)


In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table

Total GDP = C + I + G + (X-M)
Annual $ (trillions) $21.2 = $14.4 + $3.7 + $3.8 + $-.7
% of GDP 100.00% = 68.03% + 17.40% + 18.04% + -3.47%
Contribution to GDP Growth % 33.07% = 25.22% + 11.78% + -0.76% + -3.17%


The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP

Q3-2020 Q2-2020 Q1-2020 Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018 Q4-2017
Total GDP Growth 33.07% -31.39% -4.97% 2.37% 2.57% 1.50% 2.94% 1.31% 2.12% 2.70% 3.78% 3.88%
Consumer Goods 9.49% -2.06% 0.03% 0.12% 0.87% 1.57% 0.52% 0.53% 0.60% 0.88% 0.45% 1.61%
Consumer Services 15.73% -21.95% -4.78% 0.96% 0.96% 0.90% 0.73% 0.52% 1.19% 1.25% 0.95% 1.20%
Fixed Investment 5.23% -5.27% -0.23% 0.17% 0.42% -0.07% 0.50% 0.46% 0.14% 0.76% 1.42% 1.57%
Inventories 6.55% -3.50% -1.34% -0.82% -0.09% -0.97% 0.21% 0.23% 1.58% -0.94% 0.41% -0.50%
Government -0.76% 0.77% 0.22% 0.42% 0.37% 0.86% 0.43% -0.16% 0.44% 0.50% 0.26% 0.49%
Exports 4.95% -9.51% -1.12% 0.39% 0.10% -0.54% 0.22% 0.34% -0.66% 0.24% 0.34% 1.36%
Imports -8.12% 10.13% 2.25% 1.13% -0.06% -0.25% 0.33% -0.61% -1.17% 0.01% -0.05% -1.85%
Real Final Sales 26.52% -27.89% -3.63% 3.19% 2.66% 2.47% 2.73% 1.08% 0.54% 3.64% 3.37% 4.38%




Summary and Commentary

The revisions in this report are statistical noise that is immaterial relative to the unprecedented contraction during the second quarter and the third quarter's equally unprecedented (albeit partial) rebound shown in this report's headline number.

Unfortunately, the current recession will play out over the period covering at least the twelve months 4Q-2020 through 3Q-2021. The speed, logistics and demographics of the vaccine distributions will initially monopolize mainstream media headlines, while the less newsworthy economic damage will likely persist long after the vaccinations are done. The real fear is that US "Mom & Pop" entrepreneurs -- retail, dining and services -- have been crushed in ways that will require many more quarters of recovery.

As always, the winners will be the entities with the deepest pockets.
 
     

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