1Q2021 Gross Domestic Product: Second Estimate

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In its second estimate of 1Q2021 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) held the growth rate of the U.S. economy at a seasonally adjusted and annualized rate (SAAR) of +6.40% (+6.5% expected), up 0.01 percentage point (PP) from the “advance” estimate (“1Qv1”) and +2.08PP from 4Q2020.

As with 1Qv1, two groupings of GDP components -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) -- were the drivers behind the expansion, whereas private domestic investment (PDI) and net exports (NetX) made minor negative offsets.

Although the headline number was unchanged, the underlying line items moved around a little. As for details:

PCE. Contribution to 1Q headline: +7.40PP; +5.82PP from 4Q and +0.38PP from 1Qv1. Downward revisions to health care spending (-$26.9 billion, nominal) were offset by upward revisions to spending on motor vehicles and parts (+$18.8B) and receipts from sales of goods and services by nonprofit institutions (+$18.9B) -- which do not have market-derived value.

PDI. Contribution to 1Q headline: -0.82PP; -5.23PP from 4Q but +0.05PP from 1Qv1. Upward revisions to software (+$12.2B) and residential fixed investment (+$5.8B) lessened by decline.

NetX. Contribution to 1Q headline: -1.20PP; +0.33PP from 4Q but -0.33PP from 1Qv1. Goods exports were revised down by -$10.0B, and imports were revised up by a combined +$4.5B; recall that imports are inversely correlated with the GDP headline.

GCE. Contribution to 1Q headline: +1.02PP; +1.16PP from 4Q but -0.10PP from 1Qv1. The downward revision (-$6.5B) was borne almost entirely at the state and local levels.

The BEA's real final sales of domestic product -- which ignores inventories -- was revised to +9.18% (+0.14PP), a level 6.23PP above the 4Q estimate. 

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

-- Although there is no material improvement in the headline number, consumer spending on goods was better than first estimated.

-- Even though household disposable income continues to benefit from federal relief programs, most of that increase is being pocketed. The jury is still out on how free spending consumers will be as the post-pandemic normalization continues into the summer.

“This is yet another example of when month-to-month data from the BEA would be a vast improvement over the existing 80+ year old quarter-to-quarter regimen,” Davis concluded. “Simply stated, revising January through March might be academically nice, but telling us what was happening in April (or indeed, early May) would be so much better.”

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.