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

     
  December 22, 2020 - BEA Revises Third Quarter 2020 GDP Growth Slightly Upward to 33.44%:

In their third and final 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 +33.44% annual rate, up 0.37 percentage points (pp) from their previous estimate and up 64.83pp from the prior quarter.

As was the case with the previous estimate, none of the revisions are material. Once again the only minor adjustments worth mentioning were in consumer spending (up +0.22pp in aggregate, and fixed commercial investment (up +0.16pp).

In an earlier release, annualized household disposable income was revised $-40 lower than in the previous report, and the household savings rate was reported to be 16.0%, down -0.1pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 3.68%. 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 33.61%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 9.55% rate, up 0.06pp from the previous estimate and up 11.61pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 15.89%, up 0.16pp from the previous report and up 37.84pp from the prior quarter. The combined consumer contribution to the headline number was 25.44%, up 0.22pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to 5.39%, up 0.16pp from the previous report and up 10.66pp from the prior quarter.

-- Inventories added 6.57% to the headline number, up 0.02pp from the previous report and up 10.07pp 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 -0.75%, up 0.01pp from the previous report and down -1.52pp from the prior quarter.

-- The contribution from exports was revised to 4.89%, down -0.06pp from the previous report and up 14.40pp from the prior quarter.

-- Imports subtracted -8.10% annualized 'growth' from the headline number, up 0.02pp from the previous report and down -18.23pp from the prior quarter. Foreign trade contributed a net -3.21pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 26.87%, up 0.35pp from the previous report and up 54.76pp 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 $-40 lower than in the previous estimate. The annualized household savings rate was 16.0% (down -0.1pp from the previous report). In the 49 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.80%.



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% + 17.42% + 18.03% + -3.48%
Contribution to GDP Growth % 33.44% = 25.44% + 11.96% + -0.75% + -3.21%


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 33.44% -31.39% -4.97% 2.37% 2.57% 1.50% 2.94% 1.31% 2.12% 2.70% 3.78% 3.88%
Consumer Goods 9.55% -2.06% 0.03% 0.12% 0.87% 1.57% 0.52% 0.53% 0.60% 0.88% 0.45% 1.61%
Consumer Services 15.89% -21.95% -4.78% 0.96% 0.96% 0.90% 0.73% 0.52% 1.19% 1.25% 0.95% 1.20%
Fixed Investment 5.39% -5.27% -0.23% 0.17% 0.42% -0.07% 0.50% 0.46% 0.14% 0.76% 1.42% 1.57%
Inventories 6.57% -3.50% -1.34% -0.82% -0.09% -0.97% 0.21% 0.23% 1.58% -0.94% 0.41% -0.50%
Government -0.75% 0.77% 0.22% 0.42% 0.37% 0.86% 0.43% -0.16% 0.44% 0.50% 0.26% 0.49%
Exports 4.89% -9.51% -1.12% 0.39% 0.10% -0.54% 0.22% 0.34% -0.66% 0.24% 0.34% 1.36%
Imports -8.10% 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 26.87% -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 -- they are revising a +33% growth by +0.37pp, a one percent fine tuning of a number that is an artifact of the BEA's methodology of annualizing quarterly changes. As we have mentioned before, the most meaningful way to report this quarter is on a year-over-year basis:

Year-Over-Year Change Comparisons

Line Item     Q2 YOY         Q3 YOY    
Total GDP Growth -8.48% -1.72%
Consumer Goods -9.66% -1.66%
Consumer Services -12.46% -5.53%
Fixed Investment -7.04% -0.79%
Government 2.72% 1.31%
Exports -28.89% -17.31%
Imports -26.15% -10.50%




Given all of the highly visible economic displacements, by the end of the third quarter the year-over-year contractions -- except for consumer services and foreign trade -- have actually been moderate. The year-over-year numbers tell us that the lingering household spending changes have been highly focused on consumer services, and those reduced expenditures have been channeled into household savings.

However official this recession may be, it is not being evenly felt. The year-over-year numbers confirm the glaringly obvious: the people and businesses battered the most economically have been in "non-essential" services. And, as usual, the businesses (and landlords) with the shallowest pockets will suffer the most. Walmart may feel a twinge even as the corner bar and grill dies.
 
     

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