4Q2020 Gross Domestic Product: Second Estimate

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In its second estimate of 4Q2020 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) lifted the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +4.10% (+4.1% expected), up 0.08 percentage point (PP) from the “advance” estimate (“4Qv1”) but down 29.34PP from 3Q2020.

As with 4Qv1, 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.

This report contained no material revisions. All line-item contributions to the headline percentage change were revised by ±0.1PP or less relative to 4Qv1; in fact 16 of the 21 line items changed by ±0.05PP or less. Generally speaking, growth in consumer spending on goods decelerated more quickly than reported in 4Qv1, while growth in commercial and private fixed investments decelerated more slowly than first thought. Revisions to net exports and government spending offset each other. As for details:

PCE. Contribution to 4Q headline: +1.61PP; -23.83PP from 3Q and -0.09PP from 4Qv1. Spending on furnishings and durable household equipment (-$3.4 billion, nominal) led the 3Q-to-4Q decline in durable goods purchases, while food and beverage purchases (-$7.3B) led the decline in nondurable goods. However, those declines were more than offset by QoQ increases in spending on healthcare (+$78.1B) and housing and utilities (+$17.7B).

PDI. Contribution to 4Q headline: +4.23PP; -7.73PP from 3Q but +0.17PP from 4Qv1. Equipment (+$64.2B relative to 3Q; especially transportation), residential spending (+$88.1B) and nonfarm inventories (+$44.9B) were the major drivers behind PDI’s positive 4Q headline contribution.

NetX. Contribution to 4Q headline: -1.55PP; +1.66PP from 3Q but -0.03PP from 4Qv1. Goods exports were $122.8b higher than in 3Q, but that was more than offset by a $176.7B increase in goods imports.

GCE. Contribution to 4Q headline: -0.19PP; +0.56PP from 3Q and +0.03PP from 4Qv1. Federal (+$6.5B, mostly defense-related) and state and local spending (+$9.4B) both increased relative to 3Q.

The BEA's real final sales of domestic product -- which ignores inventories -- was revised to +2.99% (+0.01PP), a level 23.88PP below the 3Q estimate. 

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Consumer Metric Institute’s Rick Davis summarized the key points of this report as follows:

-- Consumer spending on goods continues to contract, and consumer spending on services shows only modest growth after the 3Q2020 bounce from the horrific lows of 2Q2020.

-- The growth in fixed investment spending is occurring in both non-residential and residential arenas, with the non-residential growth happening mostly in IT and transportation infrastructures -- which shouldn't shock anybody.

“The line item growth revisions in this report are statistical noise,” Davis concluded. “The more interesting quarter-to-quarter changes show the economy organically adjusting to some sort of ‘new reality.’ The real questions are how much of the displacements are merely temporary, and how long ‘temporary’ really is.”

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.