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GDP Rises 2.0% Entirely Due to Building Inventories, Consumer Spending Weak

Real final sales fell 0.1 percent with consumer spending on goods contracting at a 2.32% rate.
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Real GDP Perrcent Changes Three Ways 2021 Q3 Preliminary

Gross Domestic Product, Third-Quarter 2021

According to the BEA's Advance Estimate, the Gross Domestic Product for the third-quarter of 2021 rose 2.0%. 

The increase in real GDP in the third quarter reflected increases in private inventory investment, personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment, federal government spending, and exports. Imports, which are a subtraction in the calculation of GDP, increased.

The 2.0% is on a seasonally-adjusted annualized basis. For the quarter, GDP was up 0.5% on a seasonally-adjusted basis.

Detail Breakdown

Rick Davis at the Consumer Metrics Division provides the pertinent details.

  • The entire headline number consisted of inventory growth, and the BEA's bottom line 'real final sales of domestic product' was reported to be in slight contraction at -0.07%. 
  • Inventories added 2.07% to the headline number, up 3.33 percentage points from the prior quarter. It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity pricing or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series. 
  • Consumer spending was weak, as spending on goods contracted at a 2.32% rate and the growth rate for all consumer spending was down 6.84 percentage points from the prior quarter. 
  • The contribution to the headline from consumer spending on services was reported to be 3.40%, down 1.53 percentage points from the prior quarter. The combined consumer contribution to the headline number was 1.08%, down 6.84 percentage points from the prior quarter. 
  • The annualized growth in the 'real final sales of domestic product' was reported to be -0.07%, down 8.05 percentage points from the prior quarter. This is the BEA's 'bottom line' measurement of the economy (and it excludes the inventory data). 
  • Real per-capita annualized disposable income decreased by $723 quarter to quarter

Summary

  1. GDP rose entirely due to an inventory build. 
  2. The "pandemic recovery" led by consumer spending spree has softened. 
  3. Commercial fixed investments shifted into neutral. 

The report was stronger than I expected. Nonetheless, this was a weak report. 

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Real GDP in Billions of Dollars 2021

Real GDP in Billions of Dollars 2021 Q3 Preliminary

It's important to note that although the recession is over, GDP did not regain the prior trendline.

Key Question

In the absence of free money pandemic support from the government, will consumers show up in a big way Christmas?

If not, merchants will have a big problem with that inventory build.

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