BEA Revises Fourth Quarter 2020 GDP Growth Upward To 4.32%

In their third and final estimate of the US GDP for the fourth quarter of 2020, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +4.32% annual rate, up 0.23 percentage points (pp) from their previous estimate and down -29.12pp from the prior quarter.

The 0.23pp positive revision in the headline number was provided by an upward 0.26pp revision in inventories. This BEA revision showed that the contraction in consumer spending on goods was somewhat worse than previously reported, but that change was mostly offset by an upward revision to spending on services. None of the other line item revisions was material.

In an earlier release, annualized household disposable income was revised $7 lower than in the previous report, and the household savings rate was reported to be 13.0%, unchanged from the previous report.

For this estimate, the BEA assumed an effective annualized deflator of 1.87%. During the same quarter, the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was higher at 2.19%. 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 4.09%.

Among the notable items in the report :

-- Consumer spending for goods was reported to be contracting at a -0.32% rate, down -0.12pp from the previous estimate and down -9.87pp from the prior quarter.

-- The contribution to the headline from consumer spending on services was reported to be 1.90%, up 0.10pp from the previous report and down -13.99pp from the prior quarter. The combined consumer contribution to the headline number was 1.58%, down -0.02pp from the previous report.

-- The headline contribution for commercial/private fixed investments was revised to 3.04%, down -0.08pp from the previous report and down -2.35pp from the prior quarter.

-- Inventories added 1.37% to the headline number, up 0.26pp from the previous report and down -5.20pp 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 -0.14%, up 0.05pp from the previous report and up 0.61pp from the prior quarter.

-- The contribution from exports was revised to 2.04%, up 0.04pp from the previous report and down -2.85pp from the prior quarter.

-- Imports subtracted -3.57% annualized 'growth' from the headline number, down -0.02pp from the previous report, and up 4.53pp from the prior quarter. Foreign trade contributed a net -1.53pp to the headline number.

-- The annualized growth in the 'real final sales of domestic product' was revised to 2.95%, down -0.03pp from the previous report and down -23.92pp 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 $7 lower than in the previous estimate. The annualized household savings rate was 13.0% (unchanged from the previous report). In the 50 quarters since 2Q-2008, the cumulative annualized growth rate for real per-capita disposable income has been 1.51%.

The Numbers, As Revised

As a quick reminder, the classic definition of the GDP can be summarized with the following equation:

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