4Q2020 Gross Domestic Product: Third Estimate

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In its third estimate of 4Q2020 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) fine-tuned the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +4.32% (+4.1% expected), up 0.22 percentage point (PP) from the second estimate (“4Qv2”) but -29.12PP from 3Q2020.

As noted in prior 4Q reports, two of the four groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) -- contributed to 4Q growth; net exports (NetX) and government consumption expenditures (GCE) detracted.

The headline number’s uptick was dominated by an expansion of private inventories. Changes among most other line items were insignificant. As for details (all relative to 4Qv2):

* PCE. Consumer spending on goods was revised lower (-$6.5 billion, nominal dollars). Spending on services was left nearly unchanged (+$1.1B), as revisions to health care (+$10.5B) and financial services and insurance (+$9.7B) were essentially offset by the imputed value of services provided by nonprofit institutions (-$22.4B).

* PDI. Revisions to private inventories (+$14.0B) and intellectual property products (+$5.0B) were partially offset by a decline in nonresidential structures (-$10.3B).

* NetX. The change to exports (+$2.1B) more than outweighed the change to imports (+$1.7B). Recall that an increase in imports reduces the headline number.

* GCE. A revision of +$2.6B in gross investment among state and local governments accounted for essentially all of the improvement in this category.

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According to Consumer Metrics Institute’s Rick Davis, the key points of this report can be summarized as follows:

-- Consumer spending on goods continues to contract, while spending on services continues a slow recovery from the horrendous 2Q2020 numbers. Household savings rates indicate that consumers remained wary during 4Q.

-- The positive headline is provided by growth in commercial fixed investments and inventories.

“Under normal economic circumstances a report like this would be cause for -- if not celebration -- at least some smug sense of contentment,” Davis concluded. “However, these are times of significant economic displacements, and normalcy is at least a few quarters away.”

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.