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

     
  September 30, 2021 - BEA Revises Second Quarter 2021 GDP Growth Upward to 6.72%:

In their third and final 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 +6.72% annual rate, up 0.16 percentage points (pp) from their previous estimate and up 0.44pp from the prior quarter.

A half of the improved growth shown in the headline number came from upward revisions to consumer services expenditures, and a quarter came from similar revisions to consumer goods expending. Exports and inventories were also revised higher, while the growth rates for commercial fixed investment, governmental expenditures and imports were revised down.

In an earlier release, annualized household disposable income was revised $122 higher than in the previous report, and the household savings rate was reported to be 10.5%, up 0.2pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 6.24%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 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 3.70%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be growing at a 2.99% rate, up 0.04pp from the previous estimate and down -2.70pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 4.93%, up 0.08pp from the previous report and up 3.18pp from the prior quarter. The combined consumer contribution to the headline number was 7.92%, up 0.12pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to 0.61%, down -0.02pp from the previous report and down -1.64pp from the prior quarter.

-- Inventories subtracted -1.26% from the headline number, up 0.04pp from the previous report and up 1.36pp 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 -0.36%, down -0.03pp from the previous report and down -1.13pp from the prior quarter.

-- The contribution from exports was revised to 0.80%, up 0.10pp from the previous report and up 1.10pp from the prior quarter.

-- Imports subtracted -0.99% annualized 'growth' from the headline number, down -0.05pp from the previous report and up 0.27pp from the prior quarter. Foreign trade contributed a net -0.19pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 7.98%, up 0.12pp from the previous report and down -0.92pp 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 $122 higher than in the previous estimate. The annualized household savings rate was 10.5% (up 0.2pp from the previous report). In the 52 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.59%.



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) $22.7 = $15.7 + $3.9 + $4.0 + $-.9
% of GDP 100.00% = 68.96% + 17.26% + 17.66% + -3.88%
Contribution to GDP Growth % 6.72% = 7.92% + -0.65% + -0.36% + -0.19%


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 6.72% 6.28% 4.54% 33.79% -31.24% -5.13% 1.89% 2.77% 3.22% 2.41% 0.89% 1.95%
Consumer Goods 2.99% 5.69% -0.07% 9.92% -1.89% 0.04% 0.35% 0.99% 1.42% 0.29% 0.44% 0.61%
Consumer Services 4.93% 1.75% 2.34% 15.59% -22.21% -4.83% 0.77% 1.13% 0.95% 0.14% 0.72% 1.18%
Fixed Investment 0.61% 2.25% 2.92% 4.88% -5.63% -0.41% -0.19% 0.54% 1.06% 0.64% 0.31% 0.15%
Inventories -1.26% -2.62% 1.10% 6.84% -4.01% -0.51% -0.99% -0.32% -0.57% 0.49% 0.08% 1.50%
Government -0.36% 0.77% -0.09% -0.19% 0.97% 0.63% 0.52% 0.36% 0.86% 0.47% -0.14% 0.17%
Exports 0.80% -0.30% 2.07% 4.64% -8.34% -1.95% 0.17% -0.08% -0.26% 0.36% 0.05% -0.78%
Imports -0.99% -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 7.98% 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 headline number was aided by the BEA under recognizing inflation. If the arguably suspect BLS inflation data is used to deflate the reported raw growth, the headline would be essentially halved.

-- Household savings rates are at historically high levels, suggesting households are still cautious about spending.

-- Unless there is another round of government subsidies, this is likely the high water point for the pandemic recovery growth. Growth rates in excess of 6% are unsustainable in "normal" times in developed countries. If conditions are indeed returning to normal, the economy's growth rate should as well.

-- A better way to view pandemic era data is by comparison to a pre-pandemic reference year. The quarterly comparisons against 2019 (using the BEA's deflated numbers) can be summarized as follows:

Quarterly Change Comparisons -vs- Same Quarter 2019

Line Item     Q2-2020 -vs- Q2-2019         Q3-2020 -vs- Q3-2019         Q4-2020 -vs- Q4-2019         Q1-2021 -vs- Q1-2019         Q2-2021 -vs- Q2-2019    
Total GDP Growth -8.51% -1.70% -1.00% 4.94% 6.82%
Consumer Goods -2.89% 7.86% 7.19% 19.67% 23.45%
Consumer Services -12.70% -5.89% -5.07% -0.13% 2.58%
Fixed Investment -7.93% -2.57% 2.23% 9.20% 9.19%
Government 4.23% 3.49% 3.03% 8.95% 8.45%
Exports -28.64% -17.22% -11.48% -8.43% -2.84%
Imports -25.87% -10.26% -0.72% 1.71% 5.61%
Note that the table above shows the absolute "real" growth relative to 2019, with the 2021 columns representing 24 months of growth. The corresponding annualized numbers are roughly half of what is shown.


-- The take-away from the table is that consumer spending on goods has been driving this recovery, with double digit annualized growth relative to the same quarters of 2019 -- even with historically high savings rates.

The CARES Act giveaways and boosted unemployment benefits clearly did drive consumer spending. Unfortunately, unless households start to spend their savings, Q2-2021 is probably the last quarter that will benefit from the governmental giveaways.
 
     

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