1Q2021 Gross Domestic Product: Third Estimate

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In its third estimate of 1Q2021 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 +6.36% (+6.4% expected), down 0.04 percentage point (PP) from the second estimate (“1Qv2”) but +2.04PP from 4Q2020.

As noted in prior 1Q reports, two of the four groupings of GDP components -- personal consumption expenditures (PCE) and government consumption expenditures (GCE) -- contributed to 4Q growth; private domestic investment (PDI) and net exports (NetX) detracted.

Given the minor adjustment to the headline number, this report does not contain any material revisions. Most of the upward revision to the growth in consumer spending on goods was offset by a similar reduction in the consumer services line item. The real upward revisions were in commercial fixed investments and inventories. Foreign trade had the largest revisions, with imports pulling the headline down by an additional -0.38pp. As for details (all relative to 1Qv2):

* PCE. As mentioned above, consumer spending on goods was revised up (+$10.6 billion, nominal dollars), led by food and beverages purchased for off-premises consumption (+$4.6B). Spending on services was revised down (-$9.7B), led by health care (-$15.4B); that was partially offset by financial services and insurance (+$8.3B) and recreation services (+$7.9B).

* PDI. The QoQ dip in PDI was lessened somewhat by upward revisions to nonresidential structures (+$5.5B), information processing equipment (+$4.3B), and nonfarm inventories (+$4.7B).

* NetX. The drag on the headline number from net exports deepened as upward revisions to exports (+$5.6B) were swamped by upward revisions to imports (+$19.4B). Recall that an increase in imports reduces the headline number.

* GCE. Revisions in this category netted out to +$0.2B.

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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 both goods and services grew at rates that under "normal" conditions would be considered healthy.

-- Commercial investments are still growing at a respectable rate, even as that growth has softened somewhat over the past three quarters. Most of that investment growth continues to be in IT infrastructure and residential housing.

“As mentioned above, this final report for 1Q2021 contains no material revisions,” Davis observed. “Next month the BEA unleashes its annual revision cycle, which is likely to reveal new insights into just how the pandemic displaced the U.S. economy. And we look forward to finding out if the economic ‘normalization’ seen in 1Q2021 continues to have legs.”

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.