3Q2021 Gross Domestic Product: First (“Advance”) Estimate

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The Bureau of Economic Analysis (BEA) pegged its advance (first) estimate of 3Q2021 U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate (SAAR) of +2.02% (+2.7% expected), down 4.70 percentage points (PP) from 2Q2021’s +6.73%.

On a year-over-year (YoY) basis, which should eliminate any residual seasonality distortions present in quarter-over-quarter (QoQ) comparisons, GDP in 3Q2021 was 4.9% higher than in 3Q2020; that growth rate was significantly slower (-7.35PP) than 2Q2021’s +12.22% relative to 2Q2020. Total GDP was $262.9 billion (chained 2012 dollars) above its prior 4Q2019 peak.

Three groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI) and government consumption expenditures (GCE) -- were the drivers behind the 3Q expansion; and net exports (NetX) detracted from the headline.

As for details --

PCE (Contributed 1.09PP to the headline, down 6.83PP from 2Q):

* Goods. Consumer spending for goods contracted at a rate of -2.32PP, a -5.31PP change from 2Q, led by a $102.5 billion (nominal) decrease in motor vehicles and parts.

* Services. Spending on services decelerated to +3.40PP (-1.53PP from 2Q), although gains were broad-based -- ranging from financial services and insurance (+$20.9B) to food services and accommodations (+$53.5B).

PDI (Added 1.94PP, up 2.59PP from 2Q):

* Fixed investment detracted from the headline (-0.14PP, down -0.75PP from 2Q) despite gains in nominal spending -- particularly intellectual property products (+$36.7B).

* Inventories (+2.07PP, up 3.33PP from 2Q). Nonfarm inventories shrank at a much slower pace (-$60.6B) than in 2Q (-$169.7B).

NetX (Detracted 1.14PP, down 0.96PP from 2Q):

* Exports (-1.08PP from 2Q). Goods exports rose by +$23.8B; services: +$16.7B.

* Imports (+0.12PP from 2Q). Goods imports (recall that imports are inversely correlated with GDP) increased by +$39.0B; services: +$59.4B.

GCE (Contributed 0.14PP, up 0.50PP from 2Q). GCE rose in nominal terms (+$61.1B), led by state and local consumption expenditures (+$60.2B).

Annualized growth in the BEA’s real final sales of domestic product, which excludes the value of inventories) was -0.04% (down -8.03PP from 2Q).

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

-- The "pandemic recovery" consumer spending spree has softened.

-- Household disposable income dropped as Governmental assistance tapered.

-- Even commercial fixed investments "shifted into neutral."

“Although the growth recorded in this report is soft, it is useful to compare it to the pre-pandemic 3Q2019 numbers,” Davis wrote. “The annualized real growth in the GDP from 3Q2019 to 3Q2021 has been a very respectable 3.81% -- albeit aided by governmental handouts on an unprecedented scale.

“It will be interesting to see if this economy can continue to grow without a fire hose of governmental assistance,” he 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.