BEA Leaves First Quarter 2021 GDP Growth Unchanged At 6.4%
In their second 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 +6.40% annual rate, essentially unchanged (up 0.01 percentage points (pp) from their previous estimate) and up 2.08pp from the prior quarter.
Although the headline number was unchanged, the line items contributing to that headline did move around a little. Consumer spending on goods was revised upward +0.40 percentage points, and spending on fixed investments increased +0.19pp. Offsetting those gains were decreasing inventories, government spending, exports, and imports.
In an earlier release, annualized household disposable income was revised $391 higher than in the previous report, and the household savings rate was reported to be 21.4%, up 0.4pp from the previous report.
For this estimate, the BEA assumed an effective annualized deflator of 4.29%. During the same quarter, the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 5.04%. Underestimating 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 slightly lower at 5.92%.
Among the notable items in the report :
-- Consumer spending for goods was reported to be growing at a 5.34% rate, up 0.40pp from the previous estimate and up 5.66pp from the prior quarter.
-- The contribution to the headline from consumer spending on services was reported to be 2.06%, down -0.01pp from the previous report and up 0.16pp from the prior quarter. The combined consumer contribution to the headline number was 7.40%, up 0.39pp from the previous report.
-- The headline contribution for commercial/private fixed investments was revised to 1.96%, up 0.19pp from the previous report and down -1.08pp from the prior quarter.
-- Inventories subtracted -2.78% from the headline number, down -0.14pp from the previous report and down -4.15pp 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 1.02%, down -0.10pp from the previous report and up 1.16pp from the prior quarter.
-- The contribution from exports was revised to -0.29%, down -0.19pp from the previous report and down -2.33pp from the prior quarter.
-- Imports subtracted -0.91% annualized 'growth' from the headline number, down -0.14pp from the previous report and up 2.66pp from the prior quarter. Foreign trade contributed a net -1.20pp to the headline number.
-- The annualized growth in the 'real final sales of domestic product' was revised to 9.18%, up 0.15pp from the previous report and up 6.23pp 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 $391 higher than in the previous estimate. The annualized household savings rate was 21.4% (up 0.4pp from the previous report). In the 51 quarters since 2Q-2008, the cumulative annualized growth rate for real per-capita disposable income has been 2.49%.
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) | $22.1 | = | $15.1 | + | $3.9 | + | $3.9 | + | $-.9 |
| % of GDP | 100.00% | = | 68.31% | + | 17.71% | + | 17.89% | + | -3.91% |
| Contribution to GDP Growth % | 6.40% | = | 7.40% | + | -0.82% | + | 1.02% | + | -1.20% |
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 | 6.40% | 4.32% | 33.44% | -31.39% | -4.97% | 2.37% | 2.57% | 1.50% | 2.94% | 1.31% | 2.12% | 2.70% |
| Consumer Goods | 5.34% | -0.32% | 9.55% | -2.06% | 0.03% | 0.12% | 0.87% | 1.57% | 0.52% | 0.53% | 0.60% | 0.88% |
| Consumer Services | 2.06% | 1.90% | 15.89% | -21.95% | -4.78% | 0.96% | 0.96% | 0.90% | 0.73% | 0.52% | 1.19% | 1.25% |
| Fixed Investment | 1.96% | 3.04% | 5.39% | -5.27% | -0.23% | 0.17% | 0.42% | -0.07% | 0.50% | 0.46% | 0.14% | 0.76% |
| Inventories | -2.78% | 1.37% | 6.57% | -3.50% | -1.34% | -0.82% | -0.09% | -0.97% | 0.21% | 0.23% | 1.58% | -0.94% |
| Government | 1.02% | -0.14% | -0.75% | 0.77% | 0.22% | 0.42% | 0.37% | 0.86% | 0.43% | -0.16% | 0.44% | 0.50% |
| Exports | -0.29% | 2.04% | 4.89% | -9.51% | -1.12% | 0.39% | 0.10% | -0.54% | 0.22% | 0.34% | -0.66% | 0.24% |
| Imports | -0.91% | -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 | 9.18% | 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 key points of this report can be summarized as follows:
-- Although there is no material improvement in the headline number, consumer spending on goods was better than first estimated.
-- Even though household disposable income continues to benefit from Federal relief programs, most of that increase is being pocketed. The jury is still out on how free-spending consumers will be as the post-pandemic normalization continues into the summer.
This is yet another example of when month-to-month data from the BEA would be a vast improvement over the existing 80+-year-old quarter-to-quarter regimen. Simply stated, revising January through March might be academically nice, but telling us what was happening in April (or indeed, early May) would be so much better.
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