In their first (preliminary) 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 +2.00% annual rate, down -4.72 percentage points (pp) from the prior quarter.

The entire headline number consisted of inventory growth, and the BEA's bottom line 'real final sales of domestic product' was reported to be in slight contraction at -0.07%. Consumer spending was weak, as spending on goods contracted at a -2.32% rate and the growth rate for all consumer spending was down -6.84pp from the prior quarter.

Somewhat offsetting the inventory boost, the BEA assumed an effective annualized deflator of 5.71%. 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 3.09%.

In an earlier release, annualized household disposable income was reported to be $723 lower than in the prior quarter, and the household savings rate was reported to be 8.9%, down -1.6pp from the prior quarter.

For this estimate the BEA

Among the notable items in the report:

-- Consumer spending for goods was reported to be contracting at a -2.32% rate, down -5.31pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 3.40%, down -1.53pp from the prior quarter. The combined consumer contribution to the headline number was 1.08%, down -6.84pp from the prior quarter.

-- The headline contribution for commercial/private fixed investments was reported to be -0.14%, down -0.75pp from the prior quarter.

-- Inventories added 2.07% to the headline number, up 3.33pp 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 0.14%, up 0.50pp from the prior quarter.

-- The contribution from exports was reported to be -0.28%, down -1.08pp from the prior quarter.

-- Imports subtracted -0.87% annualized 'growth' from the headline number, up 0.12pp from the prior quarter. Foreign trade contributed a net -1.15pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was reported to be -0.07%, down -8.05pp 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 $723 quarter to quarter. The annualized household savings rate was 8.9% (down -1.6pp from the prior quarter). In the 53 quarters since 2Q-2008 the cumulative annualized growth rate for real per-capita disposable income has been 1.44%.

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

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

Summary and Commentary

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

-- The "pandemic recovery" consumer spending spree has softened.

-- Household disposable income dropped as Governmental assistance tapered.

-- Even commercial fixed investments "shifted into neutral."

Although the growth recorded in this report is soft, it is useful to compare it to the pre-pandemic 2019 third quarter numbers. The annualized real growth in the GDP from 3Q-2019 to 3Q-2021 has been a very respectable 3.81% -- albeit aided by Governmental handouts on an unprecedented scale.

It will be interesting to see if this economy can continue to grow without a fire hose of Governmental assistance.