Friday's Market Minute: Perspectives On GDP

On the face of it, yesterday’s GDP print was quite impressive. Adjusted for inflation, gross domestic product surged by a record 33.1% in 3Q, snapping back the 31.4% 2Q contraction during a monumentally historic economic shutdown. As expected, consumer spending proved resilient at an annualized 40.7%. Driven by pent-up demand fueled by generous unemployment benefits and fiscal largess, consumers in aggregate did their part to shore up national income and the economy.

Excluding the net trade balance and government spending, private sector capital investment spending bounced back in 3Q. This was especially true for residential investment and investment in capital equipment, but not the case for non-residential structures. Residential investment increased at a 59.3% annualized rate, equipment investment increased at a 70.1% annual rate, and investment in non-residential structures decreased at a 14.6% annual rate. These figures confirm the economic shift towards an accelerated work-from-home dynamic, as well as a sudden surge of enterprise capital quickly spent on equipment and software to minimize business discontinuity. As one would expect, investment in non-residential structures declined in 3Q, considering hotel occupancy is low, office parks are barren, and mall vacancy rates are rising.

In perspective, if you dig bit deeper, the Bureau of Economic Analysis also reports non-annualized figures which reflect quarter-over-quarter comparisons. Unadjusted, GDP jumped by a record of 7.4% from 2Q, after the record 9.0% plunge in 2Q from 1Q. Impressive as it seems, the economy still has quite a road left to travel in order to at least match nominal GDP in 2019 of $21.4 trillion. So far in 2020, nominal GDP has totaled $15.47 trillion, and approximately requires $6 trillion, or 12.3%, GDP growth in 4Q to bring the nominal annualized growth rate of the 2020 U.S. economy back to zero.

Photo by Patrick Weissenberger on Unsplash