2Q2021 Gross Domestic Product: Third Estimate

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In its third estimate of 2Q2021 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 +6.73% (+6.7% expected), up 0.17 percentage point (PP) from the second estimate (“2Qv2”) and +0.45PP from 1Q2021.

As noted in prior 2Q reports, personal consumption expenditures (PCE) was the only grouping of GDP components driving the expansion. Private domestic investment (PDI), net exports (NetX) and government consumption expenditures (GCE) made minor negative offsets. Overall, the change in the headline number reflected upward revisions to consumer spending, exports, and inventory investment that were partly offset by an upward revision to imports. As for details (all relative to 2Qv2):

PCE. The upward revision to consumer spending was somewhat evenly split between goods (+$2.4 billion, nominal) and services (+$3.4B). The food and beverage category (+$1.5B) led spending on goods while health care (+$18.7B) and other services (+19.6B) led services spending. Financial services and insurance were revised lower (-$23.8B).

PDI. Investment in nonresidential structures was revised up by $3.7B, along with private inventories (+$1.8B). That was largely offset, however, by a $5.5B cut to intellectual property products.

NetX. An upward revision to exports (+$5.9B) more than offset an increase in imports (+$2.9B). Recall that the headline number falls as imports increase.

GCE. Revisions in this category netted out to -$0.1B.

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

-- The headline number was aided by the BEA under-estimating inflation. If the [also arguably suspect] BLS inflation data is used to deflate the reported raw growth, the headline would be essentially halved.

-- Household savings rates are at historically high levels, suggesting households are still cautious about spending.

-- Unless there is another round of government subsidies, this is likely the high-water point for the pandemic recovery growth. Growth rates in excess of 6% are unsustainable in "normal" times in developed countries. If conditions are indeed returning to normal, the economy's growth rate should as well.

-- Consumer spending on goods has been driving this recovery, with double digit annualized growth relative to the same quarters of 2019 -- even with historically high savings rates.

“The CARES Act giveaways and boosted unemployment benefits clearly did drive consumer spending. Unfortunately, unless households start to spend their savings, 2Q2021 is probably the last quarter that will benefit from the governmental giveaways,” Davis concluded.

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.