3Q2021 Gross Domestic Product: Third Estimate

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In its third estimate of 3Q2021 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 +2.30% (+2.1% expected), up 0.20 percentage point (PP) from the second estimate (“3Qv2”) but -4.42PP from 2Q2021.

As with 3Qv2, 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; net exports (NetX) detracted from the headline. Overall, the change in the headline number reflected upward revisions to consumer spending and inventory investment that were partly offset by a downward revision to exports and an upward revision to imports. As for details (all relative to 3Qv2):

PCE. The upward revision to consumer spending was led by recreation services (+$12.9 billion, nominal) and transportation services (+$9.9B). Downward revisions to goods spending (-$5.8B) was concentrated in the nondurable line items.

PDI. The value of inventories was revised up by $5.1B (farm: +$2.4B; nonfarm: +$2.6B). Residential fixed investment was revised up by $2.8B.

NetX. Exports of services was cut by $16.8B; that was partially offset by imports (changes of which are inversely correlated with the headline GDP estimate), which fell by $7.9B (services: -$6.4B; goods: -$1.6B).

GCE. Virtually all of revisions to this category occurred at the state and local level (consumption expenditures: +$0.9B; gross investment: +$0.3B).

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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 goods continues to contract.

-- Global trade numbers are still softening.

-- Households have good reasons to keep their belts tightened, as annualized household disposable income was revised $32 lower than in 3Qv2.

“This set of revisions does not materially change our view of the economy,” Davis wrote. “This report continues to show mild rotation of consumer spending from goods to services, unwinding some of the spending shifts caused by the pandemic. It also highlighted the ongoing weakening of foreign trade.”

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.