GDP Growth Is Good But Normalcy Is Still Far Away

Written by Rick DavisConsumer Metrics Institute

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%. Under estimating 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 :

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