4Q2020 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 4Q2020 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +4.02% (+4.2% expected), down 29.42 percentage points (PP) from 3Q2020’s +33.44%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 4Q2020 was 2.46% lower than in 4Q2019; that growth rate was marginally better (+0.39PP) than 3Q2020’s -2.85% relative to 3Q2019. Total GDP was nearly $474 billion (chained 2012 dollars) below its 4Q2019 peak.

Two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) were the drivers behind the 4Q expansion, whereas net exports (NetX) and government consumption expenditures (GCE) made minor negative offsets.

As for details --

PCE (Contributed +1.70PP to the headline, down 23.74PP from 3Q):

·     Goods. Consumer spending for goods contracted at a rate of 0.10PP, a 9.65PP decline from 3Q. A $7.5billion (nominal) increase in purchases of motor vehicles and parts was more than offset by a decline in food and beverage purchases (-$9.0B).

·     Services. Spending on services decelerated to +1.80PP (-14.09PP from 3Q); once again, health care ($77.8B) led the increase.

PDI (Contributed +4.06PP, down 7.90PP from 3Q):

·     Fixed investment. Gains were fairly evenly split between transportation equipment ($27.6B) and intellectual property products ($26.6B). Residential investment added another $81.9B, or +1.29PP (down 0.90PP from 3Q).

·     Inventories. Inventories expanded by $44.3B, or +1.04PP (down 5.53PP from 3Q).

NetX (Detracted 1.52PP, up 1.69PP from 2Q):

·     Exports. Exports rose by $135.5B, or +2.01PP (down 2.88PP from 3Q).

·     Imports. Imports (recall that imports are inversely correlated with GDP) increased by $204.7B, subtracting 3.53PP from the headline (a 4.57PP improvement from 3Q).

GCE (Detracted 0.22PP, up 0.53PP from 3Q) despite a $16.9B increase in defense expenditures.

Annualized growth in the BLS’s real final sales of domestic product, which excludes the value of inventories) was +2.98% ( down 23.89PP from 3Q).

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“Although the economy has stabilized relative to the free-fall experienced during 2Q, it remains in modest year-over-year contraction,” observed Consumer Metric Institute’s Rick Davis. “Spending on consumer goods and commercial fixed investment have bounced back nicely, although spending on consumer services and by state and local governments are still contracting.

“As expected, the more serious issue is household income. As bad as the material drop in real household disposable income is, the aggregate number masks a huge disparity among those households -- creating a dramatic new socioeconomic divide between households with Covid-safe income streams and those with Covid-devastated income streams. Although this new divide often overlays many of the previously existing economic disparities, there are clearly sectors of the workplace where this particular divide has moved many households from ‘living paycheck to paycheck’ to ‘we have no idea how we are going to pay next month's rent.’

“The year-over-year numbers and household data contain a simple message: the fat lady ain't gonna sing anytime soon,” 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.