Written by Steven Hansen
The second estimate of second-quarter 2021 Real Gross Domestic Product (GDP) marginally improved from 6.5 % to 6.6 %.
Analyst Opinion of GDP
I am not a fan of the quarter-over-quarter exaggerated method of measuring GDP – but year-over-year growth is now in positive territory as it is being compared to the beginning of the recession.
The market expected (from Econoday):
Seasonally Adjusted Quarter-over-Quarter Change at an annual rate | Consensus Range | Consensus | Advance Actual | Second Actual | Third Actual |
Real GDP – Q/Q change – SAAR | 6.3 % to 6.9 % | +6.6 % | +6.5 % | +6.6 % | |
Real Consumer Spending – Q/Q change – SAAR | 11.2 % to 12.3 % | +11.8 % | +11.8 % | +11.9 % |
- Headline GDP is calculated by annualizing one quarter’s data against the previous quarter’s data. A better method would be to look at growth compared to the same quarter one year ago. For 2Q2021, the year-over-year growth is now +12.2 % – up from 1Q2021’s +0.5 % year-over-year. So one might say that the rate of GDP growth accelerated by 11.7 % from the previous quarter.
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Real GDP Expressed As Year-over-Year Change
The same report also provides Gross Domestic Income which in theory should equal Gross Domestic Product. Some have argued the discrepancy is due to misclassification of capital gains as ordinary income – but whatever the reason, there are differences.
Real GDP (blue line) Vs. Real GDI (red line) Expressed As Year-over-Year Change
This second estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. (See caveats below.)
Real GDP per Capita
The table below compares the previous quarter estimate of GDP (Table 1.1.2) with the current estimate this quarter which shows:
- consumption for goods and services growth improved and added 7.8 % to GDP.
- trade balance improved but still removed 0.4 % from GDP
- inventories declined and removed 1.3 % from GDP
- fixed investment growth slowed but added 0.6 % to GDP
- government spending growth declined and removed 0.3 % to GDP
The following is Table 1.1.2: [click to enlarge]
What the BEA says about the second estimate of GDP:
In the advance estimate, the increase in real GDP was also 6.4 percent. Upward revisions to consumer spending and nonresidential fixed investment were offset by downward revisions to exports and private inventory investment. Imports, which are a subtraction in the calculation of GDP, were revised up
The increase in first quarter GDP reflected the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic. In the first quarter, government assistance payments, such as direct economic impact payments, expanded unemployment benefits, and Paycheck Protection Program loans, were distributed to households and businesses through the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2021 because the impacts are generally embedded in source data and cannot be separately identified.
The following compares the GDP deflator to the Consumer Price Index:
BLS explanation of the changes to GDP:
In the second estimate for the second quarter, real GDP increased 6.6 percent, an upward revision of 0.1 percentage point. Upward revisions to nonresidential fixed investment, exports, and PCE were partly offset by downward revisions to private inventory investment, residential fixed investment, state and local government spending, and federal government spending. Imports were revised down.
Caveats on the Use of Gross Domestic Product (GDP)
GDP is the market value of all final goods and services produced within the USA where the money is used in the transaction – and it is expressed as an annualized number. GDP = private consumption + gross investment + government spending + (exports − imports), or GDP = C + I + G + (X – M). GDP counts monetary expenditures. It is designed to count the value added so that goods are not counted over and over as they move through the manufacture – wholesale – retail chain.
The vernacular relating to the different GDP releases:
“Advance” estimates, based on source data that are incomplete or subject to further revision by the source agency, are released near the end of the first month after the end of the quarter; as more detailed and more comprehensive data become available, “second” and “third” estimates are released near the end of the second and third months, respectively. The “latest” estimates reflect the results of both annual and comprehensive revisions.
Consider that GDP includes the costs of suing your neighbor or McDonald’s for hot coffee spilled in your crotch, plastic surgery or cancer treatment, buying a new aircraft carrier for the military, or even the replacement of your house if it burns down – yet little of these activities is real economic growth.
GDP does not include home costs (other than the new home purchase price even though mortgaged up to the kazoo), interest rates, bank charges, or the money spent buying anything used.
It does not measure wealth, disposable income, or employment.
In short, GDP does not measure the change of the economic environment for Joe Sixpack in 1970 and Joe Sixpack’s kid, yet pundits continuously compare GDP across time periods.
Although there always will be some correlation between all economic pulse points, GDP does not measure the economic elements that directly impact the quality of life of its citizens.
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