Key Takeaway:
- Strong gains in investments are offset by negative numbers for foreign trade
- Total GDP is $19.47 trillion, barely ahead of Q4 2019, as pandemic created a clear pause in growth
- Spending for goods are 15% higher than shortly prior to the pandemic, but still remain in negative territory for services spending
By Manuel Gutierrez, Consulting economist to NKBA
The U.S. economy grew at a paltry 2.0% in the third quarter, even worse than the lowest expectations from economists (Figure 1, left panel). Along with lingering effects of COVID, the economy faced shortages of labor and products which led to the low growth rate.
Product shortages have become more critical as countries open and close their economies responding to pandemic concerns. The labor shortage has made itself more evident in the virtual freezing of the supply chain.
Supply chain issues will continue to impact GDP growth into next year as they take time to undo.
The third quarter GDP growth of 2.0% brings the gross domestic product value to $19.47 trillion. This is just $263 billion above the $19.20 trillion generated in the fourth quarter of 2019, a reminder of how greatly the pandemic effected output. If the economy had continued to grow at a 2.6% annual rate, equal to the average growth in the three years ending in the fourth quarter of 2019, total GDP today would be $611 billion higher.
Third quarter GDP growth of 2.0% was below even the most pessimistic forecast by economists.
The poor performance for overall GDP is driven by a 2.5% drop in exports (Figure 1) and very low growth in consumer spending. Consumption, which is the biggest component of GDP, accounting for roughly two-thirds of it, grew just 1.6% in the third quarter.
Imports, which detract from GDP, rose 6.1% in the quarter. On the positive side was the robust 11.7% growth in investment.
The relative importance of the major GDP components is displayed in Figure 2. Each bar reflects the contribution of each component to the 2.0% overall GDP growth shown in Figure 1.
Three of the five components added to growth, shown by the blue bars, while two of them had a negative impact. Investment growth of 11.7% (Figure 1) in the third quarter contributed 1.94 percentage points to total growth. Combined with the 1.09 point from consumers, they represent just over three percentage points.
However, the positive contributions were adversely affected by foreign trade. The increase in imports and the drop in exports brought GDP growth down by 1.15 percentage points, resulting in the total 2.0% increase in GDP.
Total consumer spending in “real” dollars, after adjusting for inflation, reached $13.8 trillion in September. Spending is up 6.2% over the last twelve months. However, the comparison to last year is somewhat deceptive since it reflects the drop in consumption from the pandemic.
A more realistic comparison is to the beginning of last year, prior to the pandemic. Using that analysis, total spending today is 3.5% higher than in January 2020. Spending for goods is 15% higher, but services remain 1.6% lower (Figure 3), clearly still impacted by pandemic restrictions.
Consumers have spent more on durable goods, which are up 18%, while nondurables have increased by a smaller 14%.
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