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"Bringing the measurements of critical economic activities into the twenty-first century by
mining tracking data for an understanding of what American consumers were doing yesterday."

     
  December 22, 2021 - BEA Revises Third Quarter 2021 GDP Growth Upward to 2.30%:

In their third and final estimate of the US GDP for the third quarter of 2021, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a 2.30% annual rate, up 0.19 percentage points (pp) from their previous estimate and down 4.42pp from the prior quarter.

This set of revisions does not materially change our view of the economy. This report continues to show mild rotation of consumer spending from goods to services, unwinding some of the spending shifts caused by the pandemic. It also highlighted the ongoing weakening of foreign trade.

In an earlier release, annualized household disposable income was revised $32 lower than in the previous report, and the household savings rate was reported to be 9.5%, down 0.1pp from the previous report.

For this estimate the BEA assumed an effective annualized deflator of 5.93%. During the same quarter the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was lower at 4.74%. Over estimating inflation results in pessimistic growth rates, and if the BEA's nominal data was deflated using CPI-U inflation information the headline growth number would have been 3.62%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a 2.21% rate, down 0.10pp from the previous estimate and down 5.20pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 3.57%, up 0.28pp from the previous report and down 1.36pp from the prior quarter. The combined consumer contribution to the headline number was 1.36%, up 0.18pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to -0.16%, up 0.04pp from the previous report and down 0.77pp from the prior quarter.

-- Inventories added 2.20% to the headline number, up 0.07pp from the previous report and up 3.46pp 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 0.17%, up 0.01pp from the previous report and up 0.53pp from the prior quarter.

-- The contribution from exports was revised to -0.59%, down 0.26pp from the previous report and down 1.39pp from the prior quarter.

-- Imports subtracted 0.68% annualized 'growth' from the headline number, up 0.15pp from the previous report and up 0.31pp from the prior quarter. Foreign trade contributed a net -1.27pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 0.10%, up 0.12pp from the previous report and down 7.88pp 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 $32 lower than in the previous estimate. The annualized household savings rate was 9.5% (down 0.1pp from the previous report). In the 53 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.50%.



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) $23.2 = $16.0 + $4.1 + $4.1 + $-.9
% of GDP 100.00% = 68.81% + 17.67% + 17.61% + -4.08%
Contribution to GDP Growth % 2.30% = 1.36% + 2.04% + 0.17% + -1.27%


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

Q3-2021 Q2-2021 Q1-2021 Q4-2020 Q3-2020 Q2-2020 Q1-2020 Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018
Total GDP Growth 2.30% 6.72% 6.28% 4.54% 33.79% -31.24% -5.13% 1.89% 2.77% 3.22% 2.41% 0.89%
Consumer Goods -2.21% 2.99% 5.69% -0.07% 9.92% -1.89% 0.04% 0.35% 0.99% 1.42% 0.29% 0.44%
Consumer Services 3.57% 4.93% 1.75% 2.34% 15.59% -22.21% -4.83% 0.77% 1.13% 0.95% 0.14% 0.72%
Fixed Investment -0.16% 0.61% 2.25% 2.92% 4.88% -5.63% -0.41% -0.19% 0.54% 1.06% 0.64% 0.31%
Inventories 2.20% -1.26% -2.62% 1.10% 6.84% -4.01% -0.51% -0.99% -0.32% -0.57% 0.49% 0.08%
Government 0.17% -0.36% 0.77% -0.09% -0.19% 0.97% 0.63% 0.52% 0.36% 0.86% 0.47% -0.14%
Exports -0.59% 0.80% -0.30% 2.07% 4.64% -8.34% -1.95% 0.17% -0.08% -0.26% 0.36% 0.05%
Imports -0.68% -0.99% -1.26% -3.73% -7.89% 9.87% 1.90% 1.26% 0.15% -0.24% 0.02% -0.57%
Real Final Sales 0.10% 7.98% 8.90% 3.44% 26.95% -27.23% -4.62% 2.88% 3.09% 3.79% 1.92% 0.81%




Summary and Commentary

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

-- Consumer spending on goods continues to contract.

-- Global trade numbers are still softening.

-- Households have good reasons to keep their belts tightened.

All of the above is a nice exercise in fine-tuning our understanding of what the US economy was doing during the third quarter of 2021. But frankly, we no longer care about the third quarter. The BEA would better serve the public and the government if it was telling us what consumers were doing during the past two months. Quarterly reporting might have been state-of-the-art when the BEA launched these reports in the 1930s, but this is (hopefully) not the 1930s. The BEA needs to change if it wants to remain relevant.
 
     

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