4Q2021 Gross Domestic Product: Second Estimate

Click image for larger version

In its second estimate of 4Q2021 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) edged up the growth rate of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +6.99% (+7.0% expected), up 0.10 percentage point (PP) from the “advance” estimate (“4Qv1”) but +4.68PP from 3Q2021.

As with 4Qv1, two groupings of GDP components -- personal consumption expenditures (PCE), private domestic investment (PDI) -- were the drivers behind the 4Q expansion; net exports (NetX) and government consumption expenditures (GCE) detracted from the headline. As for details:

PCE. Contribution to 4Q headline: +2.13PP; +0.78PP from 3Q and -0.12PP from 4Qv1. Spending on goods was revised up by $7.0 billion (nominal), led by motor vehicles and parts (+$5.3B). That was more than offset by a downward revision to spending on services (-$19.4B), led by healthcare (-$11.0B).

PDI. Contribution to 4Q headline: +5.38PP; +3.33PP from 3Q and +0.23PP from 4Qv1. PDI was revised up by $22.4B, led by residential fixed investment (+$11.9B) and augmented by a broad-based net gain among nonresidential fixed investment (+10.2B). Private inventories, which again contributed 70% of the GDP headline, also were nudged up by $0.4B.

NetX. Contribution to 4Q headline: -0.07PP; +1.19PP from 3Q and -0.07PP from 4Qv1. Exports were revised down by -$1.9B, led by goods (-$3.0B). Imports also were revised lower (-$2.3B), led by goods (-$1.6B). Recall that changes in imports are inversely correlated with changes to the GDP headline.

GCE. Contribution to 4Q headline: -0.45PP; -0.62PP from 3Q and +0.06PP from 4Qv1. GCE was revised higher (+$5.6B), on net led entirely by state and local government spending (+$5.6B).

The BEA’s real final sales of domestic product -- which ignores inventories -- was revised to +2.09% (+0.10PP from 4Qv1), a level +1.98PP above the 3Q estimate. 

Click image for larger version

“The key points of this report are unchanged from the report issued four weeks ago,” observed Consumer Metric Institute’s Rick Davis before adding the following specifics:

-- U.S. economic growth in 4Q2021 is materially misrepresented by the headline number. And people on the street would know it, if they had any reason to pay any attention to this report in the first place.

-- The BEA’s own “bottom line” number (real final sales) is less than a third of the headline at 2.08%, and even that is significantly boosted by under-reported inflation.

-- Inventory growth may pad the headline number, but it does not signal a healthy consumer sector. Inventories are a long-term zero-sum series, so what they add to the headline in one quarter will certainly be subtracted away in future quarters. In this case retailers simply overstocked for the holiday season in anticipation of both “supply chain” issues -- and a surge in consumer spending that ultimately never materialized.

-- The root cause of most of the above are disposable incomes that are not keeping pace with inflation.

“Reporting from the BEA should be better than this,” Davis continued. “Unfortunately, there is little political will or pressure to fix overly rosy economic reports.

“And reports from the BEA should be more timely than this. This report is rehashing a quarter now 60 to 150 days in the rearview mirror. We would be far better off learning what was happening to the economy in January.”

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.