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

     
  July 29, 2021 - BEA Reports that Second Quarter 2021 GDP Grew at a 6.50% Rate:

In their first (preliminary) estimate of the US GDP for the second quarter of 2021, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +6.50% annual rate, up 0.22 percentage points (pp) from the prior quarter.

Overall, this report shows continued robust quarter-to-quarter growth in the US economy. The details show that during the quarter consumer spending growth rotated somewhat from spending on goods to spending on services as the economy continued to open up. Commercial fixed investments and governmental expenditures contracted slightly, while the previous draw down on inventories was more than halved.

Separately, the BEA revised all of their previously published numbers back through 1999. In general the revisions are not material, with the average quarterly revision to the headline number since 2006 being only -0.002pp.

More significantly, annualized household disposable income was reported to be $4,584 lower than in the prior quarter, and as a consequence the household savings rate was reported to be 10.9%, down -10.6pp from the prior quarter.

For this estimate the BEA assumed an effective annualized deflator of 6.12%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was substantially higher at 9.68%. 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 essentially cut in half to 3.33%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 2.68% rate, down -3.01pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 5.10%, up 3.35pp from the prior quarter. The combined consumer contribution to the headline number was 7.78%, up 0.34pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be 0.57%, down -1.68pp from the prior quarter.

-- Inventories subtracted -1.13% from the headline number, up 1.49pp 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 -0.27%, down -1.04pp from the prior quarter.

-- The contribution from exports was reported to be 0.64%, up 0.94pp from the prior quarter.

-- Imports subtracted -1.09% annualized 'growth' from the headline number, up 0.17pp from the prior quarter. Foreign trade contributed a net -0.45pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be 7.63%, down -1.27pp 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 decreased by $4,584 quarter to quarter. The annualized household savings rate was 10.9% (down -10.6pp from the prior quarter). In the 52 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.62%.



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) $22.7 = $15.7 + $3.9 + $4.0 + $-.9
% of GDP 100.00% = 68.97% + 17.28% + 17.69% + -3.94%
Contribution to GDP Growth % 6.50% = 7.78% + -0.56% + -0.27% + -0.45%


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

Q2-2021 Q1-2021 Q4-2020 Q3-2020 Q2-2020 Q1-2020 Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018
Total GDP Growth 6.50% 6.28% 4.54% 33.79% -31.24% -5.13% 1.89% 2.77% 3.22% 2.41% 0.89% 1.95%
Consumer Goods 2.68% 5.69% -0.07% 9.92% -1.89% 0.04% 0.35% 0.99% 1.42% 0.29% 0.44% 0.61%
Consumer Services 5.10% 1.75% 2.34% 15.59% -22.21% -4.83% 0.77% 1.13% 0.95% 0.14% 0.72% 1.18%
Fixed Investment 0.57% 2.25% 2.92% 4.88% -5.63% -0.41% -0.19% 0.54% 1.06% 0.64% 0.31% 0.15%
Inventories -1.13% -2.62% 1.10% 6.84% -4.01% -0.51% -0.99% -0.32% -0.57% 0.49% 0.08% 1.50%
Government -0.27% 0.77% -0.09% -0.19% 0.97% 0.63% 0.52% 0.36% 0.86% 0.47% -0.14% 0.17%
Exports 0.64% -0.30% 2.07% 4.64% -8.34% -1.95% 0.17% -0.08% -0.26% 0.36% 0.05% -0.78%
Imports -1.09% -1.26% -3.73% -7.89% 9.87% 1.90% 1.26% 0.15% -0.24% 0.02% -0.57% -0.88%
Real Final Sales 7.63% 8.90% 3.44% 26.95% -27.23% -4.62% 2.88% 3.09% 3.79% 1.92% 0.81% 0.45%




Summary and Commentary

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

-- The recovery of consumer spending post-shutdown continues to be robust.

-- Household income is has not grown at the same rate. The increased spending has instead come from household savings that were stashed away during the shutdown.

Under more normal circumstances the headline number would be very good news. However, these are not normal times by any measure, and the displacement in household incomes warrants ongoing attention.
 
     

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