1Q2021 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 1Q2021 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +6.39% (+6.5% expected), up 2.08 percentage points (PP) from 4Q2020’s +4.32%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 1Q2021 was 0.4% higher than in 1Q2020; that growth rate was significantly better (+2.79PP) than 4Q2020’s -2.39% relative to 4Q2019. Total GDP was $166 billion (chained 2012 dollars) below its 4Q2019 peak.

Two groupings of GDP components -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) were the drivers behind the 1Q expansion, whereas private domestic investment (PDI) and net exports (NetX) made minor negative offsets.

As for details --

PCE (Contributed +7.02PP to the headline, up 5.44PP from 4Q):

* Goods. Consumer spending for goods expanded at a rate of 4.94PP, a 5.26PP increase from 4Q, led by a $58.3 billion (nominal) increase in purchases of motor vehicles and parts, and a $56.1 billion rise in gasoline purchases.

* Services. Spending on services accelerated to +2.07PP (+0.17PP from 4Q), led by health care (+$49.3B) and food services and accommodations (+$49.5B).

PDI (Detracted 0.87PP, down 5.28PP from 4Q):

* Fixed investment (+1.77PP, down 1.27PP from 4Q). Gains were about evenly split between equipment (+$53.6B) and residential investment (+$53.4B).

* Inventories (-2.64PP, down 4.01PP from 4Q). Inventories contracted by $150.2B.

NetX (Detracted 0.87PP, up 0.66PP from 4Q):

* Exports (down 2.14PP from 4Q). Exports rose by $95.2B.

* Imports (up 2.80PP from 4Q). Imports (recall that imports are inversely correlated with GDP) increased by $138.5B.

GCE (Contributed 1.12PP, up 1.26PP from 4Q), led by $62.4B in federal nondefense expenditures, and $55.4B in state and local expenditures.

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories) was +9.04% (up 6.09PP from 4Q).

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Consumer Metric Institute’s Rick Davis was quite upbeat about the report, saying the 1Q data “clearly shows that the economy has not only stabilized relative to the free-fall experienced during 2Q2020, it has moved onward to modest year-over-year growth. Consumer spending on goods and commercial fixed investments have bounced back nicely, although consumer spending on services and exports remain in contraction.

“This is clearly a good report for the economy, and when coupled with vaccines-for-all and wide spread state and local economic re-openings, it should give households cause to further ramp up spending over the next couple of quarters. The current extreme savings rate certainly provides households the resources to do exactly that,” Davis concluded.

We agree that, on its face, the GDP report is positive news. However, when one realized that 34% of household income came from the government in 1Q, it prompts the question: “For how long can the good times roll?”

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.