The Week in Review: November 1, 2021
GDP Hits a Q3 Pothole
Gross domestic product (GDP) is the largest measure of activity for the economy. In the third quarter, GDP slowed to a 2.0% annualized pace from Q2’s 6.7% rate, according to the U.S. Bureau of Economic Analysis (BEA).
The biggest reason was a sharp slowdown in consumer spending, from Q2’s annual pace of 12.0% to 1.6% in Q3. Consumer spending accounts for 70% of GDP.
One reason for the big slowdown in spending: The government is no longer sending out stimulus checks. Without the extra cash, consumer outlays slowed sharply.
The Delta outbreak probably played a role, but if we dig into the numbers, supply chain bottlenecks were a big factor, too. Spending on durable goods, which includes autos, furniture, and household appliances, fell 26%. Autos led the way, tumbling over 50%, as semiconductor shortages severely impeded production and sales.
While growth slowed, inflation has accelerated. Before adjusting for inflation, GDP expanded at an annual pace of 7.8% to $23.2 trillion (red line in the graphic below). After the U.S. BEA adjusts for rising prices, GDP rose 2.0% to $19.5 trillion (blue line).
Think of it like this: The total value of goods and services in the economy (GDP) comprises volume and prices. Faster price hikes will cause the red line to accelerate at a quicker pace. But the blue line continues to rise, albeit more slowly, as volume increases.
Also, note that GDP unadjusted for inflation is well above the pre-pandemic peak, while real GDP, which is adjusted for inflation, is slightly above its prior peak. It highlights the recent acceleration in inflation. But the debate over whether the recent jump in prices is temporary or more permanent rages on.
Looking to the current quarter, early data suggest the economy continues to expand and may be accelerating slightly.
While forecasting has been dicey as of late, the latest Wall Street Journal survey places real growth at 4.8% in Q4.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
Nearly 7% of employees in the “accommodations and food services” sector left their job in August. That means one in 14 hotel clerks, restaurant servers, and barbacks quit their job in a single month. —The Atlantic, October 15, 2021
“Bad things happen fast, while good things take longer. … If newspapers and websites were only updated every 50 years, they might report: literacy is up, longevity increased, violence is down.” —Kevin Kelly, founder, Wired Magazine, The Case for Optimism
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