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  April 29, 2021 - BEA Reports that First Quarter 2021 GDP Grew at a 6.39% Rate:

In their first (preliminary) estimate of the US GDP for the first quarter of 2021, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +6.39% annual rate, up 2.07 percentage points (pp) from the prior quarter.

For the first time in four quarters the year-over-year numbers were also looking positive. The overall year-over-year first quarter growth of the US GDP was reported to be +2.26%, with consumer spending on goods (+13.85%) and commercial fixed investments (+7.08%) leading the way. Even the year-over-year contraction in consumer spending on services was a manageable -1.35%.

In an earlier release, annualized real per capita household disposable income was reported to have rebounded spectacularly from $46,654 to $52,549 during the quarter, pushing the household savings rate to 21.0% -- up 8.0pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 4.07%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 5.04%. 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 5.68%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 4.94% rate, up 5.26pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 2.07%, up 0.17pp from the prior quarter. The combined consumer contribution to the headline number was 7.01%, up 5.43pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be 1.77%, down -1.27pp from the prior quarter.

-- Inventories subtracted -2.64% from the headline number, down -4.01pp 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 reported to be 1.12%, up 1.26pp from the prior quarter.

-- The contribution from exports was reported to be -0.10%, down -2.14pp from the prior quarter.

-- Imports subtracted -0.77% annualized 'growth' from the headline number, up 2.80pp from the prior quarter. Foreign trade contributed a net -0.87pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be 9.03%, up 6.08pp 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 reported to have increased by $5,895 quarter to quarter. The annualized household savings rate was 21.0% (up 8.0pp from the prior quarter). In the 51 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 2.43%.



The Numbers

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) $22.0 = $15.0 + $3.9 + $4.0 + $-.8
% of GDP 100.00% = 68.22% + 17.70% + 17.93% + -3.84%
Contribution to GDP Growth % 6.39% = 7.01% + -0.87% + 1.12% + -0.87%


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

Q1-2021 Q4-2020 Q3-2020 Q2-2020 Q1-2020 Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018
Total GDP Growth 6.39% 4.32% 33.44% -31.39% -4.97% 2.37% 2.57% 1.50% 2.94% 1.31% 2.12% 2.70%
Consumer Goods 4.94% -0.32% 9.55% -2.06% 0.03% 0.12% 0.87% 1.57% 0.52% 0.53% 0.60% 0.88%
Consumer Services 2.07% 1.90% 15.89% -21.95% -4.78% 0.96% 0.96% 0.90% 0.73% 0.52% 1.19% 1.25%
Fixed Investment 1.77% 3.04% 5.39% -5.27% -0.23% 0.17% 0.42% -0.07% 0.50% 0.46% 0.14% 0.76%
Inventories -2.64% 1.37% 6.57% -3.50% -1.34% -0.82% -0.09% -0.97% 0.21% 0.23% 1.58% -0.94%
Government 1.12% -0.14% -0.75% 0.77% 0.22% 0.42% 0.37% 0.86% 0.43% -0.16% 0.44% 0.50%
Exports -0.10% 2.04% 4.89% -9.51% -1.12% 0.39% 0.10% -0.54% 0.22% 0.34% -0.66% 0.24%
Imports -0.77% -3.57% -8.10% 10.13% 2.25% 1.13% -0.06% -0.25% 0.33% -0.61% -1.17% 0.01%
Real Final Sales 9.03% 2.95% 26.87% -27.89% -3.63% 3.19% 2.66% 2.47% 2.73% 1.08% 0.54% 3.64%




Summary and Commentary

The best way to view pandemic era data is on a year-over-year basis. The quarterly comparisons can be summarized as follows:

Year-Over-Year Change Comparisons

Line Item     Q2-2020 YOY         Q3-2020 YOY         Q4-2020 YOY         Q1-2021 YOY    
Total GDP Growth -8.48% -1.72% -1.16% 2.26%
Consumer Goods -3.46% 6.91% 6.54% 13.85%
Consumer Services -12.46% -5.53% -5.02% -1.35%
Fixed Investment -7.04% -0.79% 3.67% 7.08%
Government 2.72% 1.31% 0.79% 3.10%
Exports -28.89% -17.31% -12.15% -5.47%
Imports -26.15% -10.50% -1.68% 7.48%




The above table clearly shows that the economy has not only stabilized relative to the free-fall experienced during the second quarter of 2020, it has moved onward to modest year-over-year growth. Consumer spending on goods and commercial fixed investments have bounced back nicely, although consumer spending on services and exports remain in contraction.

This is clearly a good report for the economy, and when coupled with vaccines-for-all and wide spread state and local economic re-openings, it should give households cause to further ramp up spending over the next couple of quarters. The current extreme savings rate certainly provides households the resources to do exactly that.
 
     

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