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Economy in Brief

U.S. GDP Growth Disappoints in Q2'21; Economy Exceeds Pre-Pandemic Level
by Tom Moeller  July 29, 2021

• Consumer & business spending remain strong.

• Residential & government spending decline.

• Inventories & foreign trade subtract from growth.

Business re-openings & vaccinations continued to boost economic growth last quarter. Real GDP of 6.5% (SAAR) during Q2'21 was the quickest since Q3'03, with the exception of the 33.8% Q3'20 rebound from the coronavirus recession. An 8.5% increase had been expected in the Action Economics Forecast Survey. Growth during Q1'21 was revised to 6.3% from 6.4%. Earlier numbers also were revised.

The disappointment in growth last quarter centered on a 1.1 percentage point subtraction due to inventory decumulation. Foreign trade also reduced growth by 0.4 percentage points as a 6.0% gain (18.1% y/y) in exports was outpaced by 7.8% growth (30.8% y/y) in imports.

Domestic final sales grew a lessened 7.9% (12.9% y/y) following a 10.4% rise in Q1. Consumer spending growth of 11.8% (16.2% y/y) followed an 11.4% Q1 increase. Durable goods outlays rose 9.9% (33.2% y/y) after a 50.0% strengthening as spending on motor vehicles rose 14.5% (37.2% y/y) after growing 58.1%. Recreational goods & vehicles improved a greatly lessened 9.0% (23.5% y/y) but outlays on furniture & appliances fell 1.3% (+24.1% y/y) after rising 49.7%. Nondurable goods spending gained 12.6% (14.2% y/y) after rising 15.9%. Clothing outlays grew a fairly steady 34.3% (55.5% y/y) but spending growth on food & beverages weakened to 2.4% (5.1% y/y) from 18.3% in Q1. Outlays on gasoline & heating oil rose 34.3% (24.0% y/y) after a 5.7% rise. Spending on services surged 12.0% (13.9% y/y) following a 3.9% rise. Health care outlays rose 4.8% (21.5% y/y) and recovered the Q1 decline. Recreation outlays surged 42.8% (57.2% y/y) and built on a 27.8% Q1 rise. Restaurant & hotel outlays surged by two-thirds (60.6% y/y) after a 32.9% rise.

Business fixed investment improved 8.0% (13.0% y/y) after rising 12.9%. Outlays on structures fell 6.9% (-6.6% y/y), off for the sixth quarter in the last seven. Equipment investment rose 13.0% (26.3% y/y) after a 14.1% improvement. Investment in industrial equipment strengthened roughly one-third (19.7% y/y) after a 7.2% rise, but information processing equipment investment fell 6.1% (17.8% y/y) after a 25.9% rise. Investment in intellectual property products strengthened 10.7% (11.1% y/y) following a 15.6% increase.

Residential fell 9.8% (+21.7% y/y) after a 13.3% gain. It was the first decline in a year.

Government spending declined 1.5% but was fairly steady y/y. Federal government spending fell 5.0% (-0.8% y/y) after an 11.3% gain as nondefense outlays dropped 10.4% (-1.8% y/y) after surging 40.8%. Defense outlays eased 0.8% and were unchanged y/y. State & local government spending edged 0.8% higher (0.5% y/y) after easing 0.1% in Q1.

The chain-weighted GDP price index surged 6.0% (4.0% y/y). It was the strongest gain since Q4 1981. A 5.4% rise had been expected. The PCE price measure advanced 6.4% (3.8% y/y) after a 3.8% rise. The durable goods price index surged a record 16.8% (6.5% y/y) after a 2.3% rise. The nondurable goods price index rose 5.0% (4.2% y/y) after gaining 8.0%. The services chain price index rose 4.9% (3.2% y/y) after a 2.8% rise. The business fixed investment price index rose 0.9% (0.6% y/y), about as it did in Q1. The structures price index rose 8.8% (3.5% y/y) but the equipment price series fell 3.4% (-1.3% y/y). Prices for intellectual property products fell 2.0% (+1.1% y/y). The residential property price index surged 14.5% (10.6% y/y) following a 12.4% jump.

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in AS1REPNA.

Why Credit Cards Played a Surprisingly Big Role in the Great Recession from the Federal Reserve Bank of Philadelphia can be found here.

Chained 2012 $ (%, AR) Q2'21 Q1'21 Q4'20 Q2'21 Y/Y 2020 2019 2018
Gross Domestic Product 6.5 6.3 4.5 12.2 -3.4 2.3 2.9
  Inventory Effect (% point) -1.1 -2.6 1.1 1.0 -0.5 0.1 0.1
Final Sales 7.7 9.1 3.4 11.2 -2.9 2.2 2.8
  Foreign Trade Effect (% point) -0.4 -1.6 -1.6 -1.7 -0.4 -0.2 -0.2
Domestic Final Sales 7.9 10.4 5.0 12.9 -2.5 2.4 3.0
Demand Components
  Personal Consumption Expenditure 11.8 11.4 3.4 16.2 -3.8 2.2 2.9
  Nonresidential Fixed Investment 8.0 12.9 12.5 13.0 -5.3 4.3 6.4
  Residential Investment -9.8 13.3 34.4 21.7 6.8 -0.9 -0.6
  Government Spending -1.5 4.2 -0.5 -0.0 2.5 2.2 1.4
Chain-Type Price Index
   GDP 6.0 4.3 2.2 4.0 1.3 1.8 2.4
    Personal Consumption Expenditure 6.4 3.8 1.5 3.8 1.2 1.5 2.1
       Less Food & Energy 6.1 2.7 1.2 3.4 1.4 1.7 2.0
    Nonresidential Investment 0.9 0.8 0.4 0.6 0.6 1.3 0.8
    Residential Investment 14.5 12.4 6.5 10.6 3.3 2.9 5.6
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