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

     
  February 25, 2021 - BEA Revises Fourth Quarter 2020 GDP Growth Upward to 4.09%:

In their second estimate of the US GDP for the fourth quarter of 2020, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +4.09% annual rate, up 0.07 percentage points (pp) from their previous estimate and down -29.35pp from the prior quarter.

None of the revisions in this report are material. Consumer spending on goods continues to contract, while spending on commercial fixed investments and inventories provided the upward revision to the headline number. All of the other revisions are statistical noise.

In an earlier release, annualized household disposable income was revised $226 lower than in the previous report, and the household savings rate was reported to be 13.0%, down -0.4pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 1.97%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 2.19%. Under estimating inflation results in optimistic growth rates, and if the BEA's nominal data was deflated using CPI-U inflation information the headline growth number would have been 3.95%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a -0.20% rate, down -0.10pp from the previous estimate and down -9.75pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.80%, unchanged from the previous report and down -14.09pp from the prior quarter. The combined consumer contribution to the headline number was 1.60%, down -0.10pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to 3.12%, up 0.10pp from the previous report and down -2.27pp from the prior quarter.

-- Inventories added 1.11% to the headline number, up 0.07pp from the previous report and down -5.46pp 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 -0.19%, up 0.03pp from the previous report and up 0.56pp from the prior quarter.

-- The contribution from exports was revised to 2.00%, down -0.01pp from the previous report and down -2.89pp from the prior quarter.

-- Imports subtracted -3.55% annualized 'growth' from the headline number, down -0.02pp from the previous report and up 4.55pp from the prior quarter. Foreign trade contributed a net -1.55pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 2.98%, unchanged from the previous report and down -23.89pp 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 $226 lower than in the previous estimate. The annualized household savings rate was 13.0% (down -0.4pp from the previous report). In the 50 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.51%.



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) $21.5 = $14.5 + $3.9 + $3.8 + $-.8
% of GDP 100.00% = 67.68% + 18.23% + 17.84% + -3.74%
Contribution to GDP Growth % 4.09% = 1.60% + 4.23% + -0.19% + -1.55%


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

Q4-2020 Q3-2020 Q2-2020 Q1-2020 Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018
Total GDP Growth 4.09% 33.44% -31.39% -4.97% 2.37% 2.57% 1.50% 2.94% 1.31% 2.12% 2.70% 3.78%
Consumer Goods -0.20% 9.55% -2.06% 0.03% 0.12% 0.87% 1.57% 0.52% 0.53% 0.60% 0.88% 0.45%
Consumer Services 1.80% 15.89% -21.95% -4.78% 0.96% 0.96% 0.90% 0.73% 0.52% 1.19% 1.25% 0.95%
Fixed Investment 3.12% 5.39% -5.27% -0.23% 0.17% 0.42% -0.07% 0.50% 0.46% 0.14% 0.76% 1.42%
Inventories 1.11% 6.57% -3.50% -1.34% -0.82% -0.09% -0.97% 0.21% 0.23% 1.58% -0.94% 0.41%
Government -0.19% -0.75% 0.77% 0.22% 0.42% 0.37% 0.86% 0.43% -0.16% 0.44% 0.50% 0.26%
Exports 2.00% 4.89% -9.51% -1.12% 0.39% 0.10% -0.54% 0.22% 0.34% -0.66% 0.24% 0.34%
Imports -3.55% -8.10% 10.13% 2.25% 1.13% -0.06% -0.25% 0.33% -0.61% -1.17% 0.01% -0.05%
Real Final Sales 2.98% 26.87% -27.89% -3.63% 3.19% 2.66% 2.47% 2.73% 1.08% 0.54% 3.64% 3.37%




Summary and Commentary

The key points of this report can be summarized as follows:

-- Consumer spending on goods continues to contract, and consumer spending on services shows only modest growth after the Q3-2020 bounce from the horrific lows of Q2-2020.

-- The growth in fixed investment spending is occurring in both non-residential and residential arenas, with the non-residential growth happening mostly in IT and transportation infrastructures -- which shouldn't shock anybody.

-- Since the second quarter of 2008 there has been a cumulative "real" annualized growth in household disposable income of 1.5%. This is neither great nor catastrophic -- sort of a Goldilocks growth rate, if you ignore the growth in debt lurking below the surface.

--But we have always thought that the household savings rate is the true canary for this consumer driven economy. Numbers north of 13% tell us that households aren't sleeping easy.

As mentioned above, the line item revisions in this report are statistical noise. The more interesting quarter-to-quarter changes show the economy organically adjusting to some sort of "new reality." The real questions are how much of the obvious displacements are merely temporary, and how long "temporary" is really going to be.
 
     

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