GDP back to Q1 2018. Worst ever “net exports.” The decline in government spending was also a drag. “GDP per Capita” bounced back only to 2017 level.
By Wolf Richter for WOLF STREET:
The spectacular spectacle of an absurd creature called the “annualized” growth rate of GDP appeared again this morning, and the headlines screamed that GDP, adjusted for inflation, surged by a record of “33.1%” in Q3. On the face of it, this would mean that the economy increased by one-third from Q2. But that’s the magic of “annualized” rates. And it’s time to kill them in headline reporting.
That “33.1%” reflected the jump in Q3 from Q2 but roughly multiplied by 4 to produce a theoretical figure of what GDP for the whole year would be if it kept surging four quarters in a row like this. And that’s not going to happen, just like the plunge in Q2 wasn’t actually “31.4%” and wasn’t repeated four quarters in a row. Deeper down in its GDP report this morning, the Bureau of Economic Analysis also reported “not annualized” figures. And not annualized, GDP jumped by a record of 7.4% from Q2, after the record 9.0% plunge in Q2 from Q1:
Both the jump in Q3 and the plunge in Q2 were the sharpest moves ever in the quarterly GDP data, which began in 1947. Before then, there were only annual data.
And we faced another “annualized” figure in today’s GDP reporting: that GDP in Q3 was $18.58 trillion “annual rate” and “seasonally adjusted” and “in 2012 dollars.” These “2012 dollars” are used to adjust for inflation (loss of purchasing power). And so these terms show how far economic activity dropped in Q2 and the partial bounce-back in Q3. This measure of GDP puts it back where it had first been in Q1 2018:
But the US economy isn’t actually that big. This “annualized rate” is roughly 4 times Q3 GDP expressed in 2012 dollars (adjusted for inflation in that manner).
Actual or “nominal” GDP in Q3 in “current dollars” (not 2012 dollars and therefore not adjusted for inflation) and not annualized, was $5.32 trillion.
Nominal GDP for the entire year of 2020 will be a little over $20 trillion — unless something big and bad happens to economy in Q4 — and will still be down from nominal GDP in 2019 of $21.4 trillion.
And no, consumer spending didn’t soar by “40.7%” in Q3. That was another absurd “annualized” growth rate. Consumer spending jumped 8.9%, not annualized, in Q3 from Q2, after having plunged 9.6% in Q2 from Q1.
In dollar terms, and adjusted for inflation, consumer spending bounced back to the level where it had first been in Q2 2018, to $12.92 trillion in the inescapably seasonally adjusted annual rate expressed in 2012 dollars:
Consumer spending accounted for 68% of GDP in Q3. The bounce-back in spending was driven by stimulus and extra unemployment benefits. Not all of this money has been spent in Q2 and Q3, and some of it was used to pay down credit card balances, thus giving these consumers more room to spend in Q4.
Consumer spending includes retail spending, which has soared to record highs under the stimulus money and booming ecommerce sales. But it also includes services such as rents, healthcare, insurance, airline tickets, lodging, etc., which combined are far larger than retail, and some of these services, while also recovering, are still deeply in the hole, particularly the travel-related services.
Gross private domestic investment – includes investment in residential and non-residential structures, equipment, and intellectual property products such as software – also bounced back, to Q3 2018 levels of $3.37 trillion seasonally adjusted annual rate:
Imports were a huge drag on GDP. (All figures in 2012 dollars, seasonally adjusted annual rates.) Imports soared by $465 billion in Q3 from Q2, to $3.18 trillion, fired up by stimulus payments and extra unemployment benefits, and by rent and mortgage payments not-made, that consumers spent on imported goods. Exports also rose, but not nearly as much (+$236 billion) and from a much smaller base, to $2.17 trillion.
So, “real net exports” of goods and services (exports minus imports, the trade deficit) in Q3 hit a negative $1.01 trillion, an all-time worst, 30% worse than in Q2, and 6.4% worse than in Q3 2019.
Negative “net exports” act as a reduction of GDP. In other words, the portion of the stimulus that was spent on consumer goods that were imported, or whose components were imported, stimulated the economies of China, Germany, Mexico, Bangladesh, etc., and acted as negative for the US economy, thank you hallelujah stimulus:
Government spending declined and dragged on GDP. (All figures in 2012 dollars, seasonally adjusted annual rates). Spending by the federal government in Q3 fell by $22 billion from Q2, to $1.34 trillion. State and local government spending fell by $17 billion to $2.0 trillion. Spending by all government levels combined fell by $38 trillion to $3.33 trillion. This decline is a combination of the fading CARES Act payments, and of horrendous budget nightmares at state and local levels:
And for your amusement, GDP per capita, which reflects the slice of the economy per individual, bounced back only to $56,252 (in 2012 dollars, seasonally adjusted annual rate), not even the Q4 2017 level, and still down 3.4% from a year earlier:
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