BEA Revises First Quarter 2021 GDP Growth Slightly Downward To 6.36%
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In their third and final 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 +6.36% annual rate, down -0.04 percentage points (pp) from their previous estimate and up 2.04pp from the prior quarter.
As the only minor adjustment in the headline number indicates, this report does not contain any material revisions. Most of the upward revision to the growth in consumer spending on goods was offset by a similar reduction in the consumer services line item. The real upward revisions were in commercial fixed investments (good) and inventories (not so good). Foreign trade had the largest revisions, with imports pulling the headline down by an additional -0.38pp.
In an earlier release, annualized household disposable income was revised $29 higher than in the previous report, and the household savings rate was reported to be 21.5%, up 0.1pp from the previous report.
For this estimate, the BEA assumed an effective annualized deflator of 4.34%. 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 5.93%.
Among the notable items in the report:
-- Consumer spending for goods was reported to be growing at a 5.53% rate, up 0.19pp from the previous estimate and up 5.85pp from the prior quarter.
-- The contribution to the headline from consumer spending on services was reported to be 1.89%, down -0.17pp from the previous report and down -0.01pp from the prior quarter. The combined consumer contribution to the headline number was 7.42%, up 0.02pp from the previous report.
-- The headline contribution for commercial/private fixed investments was revised to 2.09%, up 0.13pp from the previous report and down -0.95pp from the prior quarter.
-- Inventories subtracted -2.67% from the headline number, up 0.11pp from the previous report and down -4.04pp 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 unchanged at 1.02%, up 1.16pp from the prior quarter.
-- The contribution from exports was revised to -0.21%, up 0.08pp from the previous report and down -2.25pp from the prior quarter.
-- Imports subtracted -1.29% annualized 'growth' from the headline number, down -0.38pp from the previous report and up 2.28pp from the prior quarter. Foreign trade contributed a net -1.50pp to the headline number.
-- The annualized growth in the 'real final sales of domestic product' was revised to 9.03%, down -0.15pp from the previous report and up 6.08pp 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 $29 higher than in the previous estimate. The annualized household savings rate was 21.5% (up 0.1pp from the previous report). In the 51 quarters since 2Q-2008, the cumulative annualized growth rate for real per-capita disposable income has been 2.50%.
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) | $22.1 | = | $15.1 | + | $3.9 | + | $3.9 | + | $-.9 |
| % of GDP | 100.00% | = | 68.31% | + | 17.77% | + | 17.89% | + | -3.97% |
| Contribution to GDP Growth % | 6.36% | = | 7.42% | + | -0.58% | + | 1.02% | + | -1.50% |
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 | 6.36% | 4.32% | 33.44% | -31.39% | -4.97% | 2.37% | 2.57% | 1.50% | 2.94% | 1.31% | 2.12% | 2.70% |
| Consumer Goods | 5.53% | -0.32% | 9.55% | -2.06% | 0.03% | 0.12% | 0.87% | 1.57% | 0.52% | 0.53% | 0.60% | 0.88% |
| Consumer Services | 1.89% | 1.90% | 15.89% | -21.95% | -4.78% | 0.96% | 0.96% | 0.90% | 0.73% | 0.52% | 1.19% | 1.25% |
| Fixed Investment | 2.09% | 3.04% | 5.39% | -5.27% | -0.23% | 0.17% | 0.42% | -0.07% | 0.50% | 0.46% | 0.14% | 0.76% |
| Inventories | -2.67% | 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 | -0.21% | 2.04% | 4.89% | -9.51% | -1.12% | 0.39% | 0.10% | -0.54% | 0.22% | 0.34% | -0.66% | 0.24% |
| Imports | -1.29% | -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 | 9.03% | 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:
-- Consumer spending on both goods and services grew at rates that under "normal" conditions would be considered healthy.
-- Commercial investments are still growing at a respectable rate, even as that growth has softened somewhat over the past three quarters. Most of that investment growth continues to be in IT infrastructure and residential housing.
As mentioned before, this final report for 1Q-2021 contains no material revisions. Next month the BEA unleashes its annual revision cycle, which is likely to reveal new insights into just how the pandemic displaced the US economy. And we look forward to finding out if the economic "normalization" seen in 1Q-2021 continues to have legs.
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