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Economy in Brief

U.S. GDP Growth Slows Sharply in Q3'21
by Tom Moeller  October 28, 2021

• Growth is weakest since recession ended.

• Personal spending slowed by Covid & limited product availability.

• Price inflation remains firm.

Real GDP growth in Q3 2021 decelerated to 2.0% (SAAR) from an unrevised 6.7% in Q2. A 2.6% rise had been expected in the Action Economics Forecast Survey. During the last year the economy grew 4.9%. Stay-at-home guidelines and supply chain disruptions constrained spending.

These latter two factors limited Q3 consumer spending growth to 1.6% (7.0% y/y) after double-digit gains in the prior two quarters. Durable goods buying fell 26.2% (+5.7% y/y) as parts shortages limited the availability of new motor vehicles, depressing spending by 53.9% (-3.6% y/y). Home furnishings purchases fell 10.3% (+6.1% y/y) and sales of recreational goods & vehicles declined 7.3% (+10.0% y/y). Nondurable goods spending rose 2.6% in Q3 (7.6% y/y) following double-digit growth in the prior two quarters. Clothing spending eased 0.5% (+17.7% y/y) after rising by one-third in each of the prior two quarters. Food & beverage spending held steady (+4.2% y/y) but gasoline & oil purchases surged 13.9% (9.6% y/y) after strengthening 36.4% in Q2. Real services outlays grew 7.9% (7.1% y/y) following an 11.5% surge in Q2. Transportation outlays strengthened 41.6% (24.5% y/y) and recreation spending grew 16.6% (22.1% y/y), strong for the third straight quarter. Spending at restaurants & hotels improved 12.4% (24.3% y/y) after a nearly two-thirds rise in Q2. Health care outlays rose 5.7% (6.2% y/y) while housing & utilities spending gained 1.1% (0.9% y/y).

Business fixed investment rose 1.8% last quarter (9.0% y/y) following a 9.2% rise. Structures investment fell 7.2% (-3.4% y/y) and has been falling since the end of 2019. Equipment outlays declined 3.2% (+11.9% y/y) following four quarters of strong growth. Industrial equipment investment rose 11.3% (17.3% y/y) after a 32.9% surge. Information processing equipment investment declined 5.9% (+6.1% y/y) after falling 7.8% in Q2. Spending growth on intellectual property products held steady at 12.2% (12.6% y/y).

Residential investment declined 7.7% (+5.5% y/y), off for the second straight quarter.

Government outlays grew edged 0.8% higher (0.6% y/y) last quarter following a 2.0% decline in Q2 as federal government spending dropped 4.7% (-0.7% y/y), the third decline in the last four quarters. Defense spending has been falling all this year. State & local government spending rose 4.4% (1.4% y/y) after a 0.2% gain.

The contribution to GDP growth from the change in inventories rose to 2.1 percentage points last quarter following inventory decumulation in the prior two quarters. The contribution from international trade was a negative 1.1 percentage points as exports fell 2.5% (+5.7% y/y) after a 7.6% rise and imports jumped 6.1% (13.0% y/y), the fifth straight quarter of firm growth.

The GDP price index rose 5.7% last quarter (4.6% y/y) compared to an expected 5.2% gain. The PCE price index increased 5.3% (4.3% y/y). The durable goods price measure gained 9.6% (7.1% y/y) after rising 16.8% in Q2. The nondurable goods price index improved 5.9% (4.8% y/y) following a 5.0% rise. The services price index rose 4.2% (3.5% y/y) following a 5.0% increase. The business fixed investment price index strengthened 4.2% (1.5% y/y) after four straight quarters of minimal increase. A 4.8% gain (0.4% y/y) in the equipment price index was accompanied by a 0.7% rise (0.8% y/y) in the intellectual property product price index. The residential investment price index rose 14.0% (12.0% y/y) and the government price index gained 5.4% (5.0% y/y).

The GDP figures can be found in no Haver's USECON and USNA databases. 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.

Chained 2012 $ (%, AR) Q3'21 Q2'21 Q1'21 Q3'21 Y/Y 2020 2019 2018
Gross Domestic Product 2.0 6.7 6.3 4.9 -3.4 2.3 2.9
  Inventory Effect (% point) 2.1 -1.3 -2.6 1.2 -0.5 0.1 0.1
Final Sales -0.1 8.1 9.1 5.1 -2.9 2.2 2.8
  Foreign Trade Effect (% point) -1.1 -0.2 -1.6 -0.9 -0.4 -0.2 -0.2
Domestic Final Sales 1.0 8.0 10.4 6.0 -2.5 2.4 3.0
Demand Components
  Personal Consumption Expenditure 1.6 12.0 11.4 7.0 -3.8 2.2 2.9
  Nonresidential Fixed Investment 1.8 9.2 12.9 9.0 -5.3 4.3 6.4
  Residential Investment -7.7 -11.7 13.3 5.5 6.8 -0.9 -0.6
  Government Spending 0.8 -2.0 4.2 0.6 2.5 2.2 1.4
Chain-Type Price Index
   GDP 5.7 6.1 4.3 4.6 1.3 1.8 2.4
    Personal Consumption Expenditure 5.3 6.5 3.8 4.3 1.2 1.5 2.1
       Less Food & Energy 4.5 6.1 2.7 3.6 1.4 1.7 2.0
    Nonresidential Investment 4.2 0.9 0.8 1.5 0.6 1.3 0.8
    Residential Investment 14.0 15.3 12.4 12.0 3.3 2.9 5.6
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