3Q2020 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 3Q2020 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +33.08% (+38.9% expected), up 64.47 percentage points (PP) from 2Q2020’s -31.39%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 3Q2020 was 2.91% lower than in 3Q2019; that growth rate was dramatically better (+6.12PP) than 2Q2020’s -9.03% relative to 2Q2019.

Two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) were the drivers behind the expansion, whereas net exports (NetX) and government consumption expenditures (GCE) made minor negative offsets.

As for details --

PCE (Contributed +25.27PP to the headline, up 49.28PP from 2Q):

·     Goods. Consumer spending for goods expanded at a rate of 9.24PP, a +11.30PP turnaround from 2Q. Spending on motor vehicles and parts ($84.3 billion, chained 2012 dollars), and clothing and footwear ($86.4 billion) led the increase.

·     Services. Spending on services jumped by 16.04PP (up 37.99PP from 2Q), particularly health care ($320.4 billion).

PDI (Contributed +11.58PP, up 20.35PP from 2Q):

·     Fixed investment. Nonresidential fixed investment edged up by 2.88PP (+6.55PP from 2Q), led by equipment ($153.4 billion). Residential investment amounted to $70.5 billion, or +2.09PP (+3.69PP from 2Q).

·     Inventories. Inventories expanded by $286.0 billion, or +6.62PP, up 10.12PP from 2Q.

NetX (Detracted 3.09PP, down 3.71PP from 2Q):

·     Exports. Exports rose at a rate of 4.90PP, up 14.41PP from 2Q.

·     Imports. A jump in imports (recall that imports are inversely correlated with GDP) subtracted 7.99PP from the headline (-18.12PP from 2Q).

GCE (Detracted 0.68PP, down 1.45PP from 2Q).

Annualized growth in the BLS’s real final sales of domestic product, which excludes the value of inventories) was +26.46% (+54.35PP from 2Q).

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As was the case in 2Q, “the headline number should be disregarded,” wrote Consumer Metric Institute’s Rick Davis; “it is an artifact of arcane methodologies” that amplify QoQ changes. “On a YoY basis the economy is still shrinking, although the level of contraction during 3Q was certainly not as catastrophic as during 2Q. By 2020 standards, that is good news,” Davis concluded.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.