October 29, 2021
Real gross domestic product (GDP) rose at an annual rate of 2.0% for the third quarter of 2021 according to the advance estimate released by the Bureau of Economic Analysis (BEA). This follows an increase of 6.7% in the second quarter.
The third quarter GDP increase reflected continued economic impact of the COVID-19 pandemic. BLS noted, “a resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country. Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased.”
The upward movement in real GDP for the third quarter was mainly attributed to increases in private inventory investment, personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment but was partly offset by declines in residential fixed investment, federal government spending, and exports. Moreover, imports increased.
Notably, rises in wholesale trade, led by nondurable goods industries, and retail trade, driven by motor vehicles and parts dealers, accounted for the growth in private inventory investment. The rise in PCE was due to a rise in services, which was somewhat offset by a drop in goods. Within services, gains were widespread, with “other” services (mostly international travel), transportation services, and health care contributing the most. The decline in goods was mostly due to lower spending on motor vehicles and parts. Employee compensation drove the increase in state and local government spending (notably, education). Increases in intellectual property products (headed by software) somewhat offset declines in structures and equipment, resulting in a rise in nonresidential fixed investment.
Furthermore, the drop in residential fixed investment was mostly due to fewer upgrades and new single-family homes. “After the processing and administration of Paycheck Protection Program loan applications by banks on behalf of the federal government ended in the second quarter, the decrease in federal government spending primarily reflected a decrease in nondefense spending on intermediate goods and services. The drop in exports was due to a drop in goods, which was partially offset by a rise in services. Imports increased mostly due to an increase in services (headed by travel and transport).”
Current dollar GDP rose 7.8% at an annual rate, or $432.5 billion, in the third quarter to a level of $23.17 trillion. In the third quarter of 2021, the price index for gross domestic purchases went up 5.4%. In addition, the PCE price index rose 5.3%. With the exception of the food and energy prices, the PCE price index climbed 4.5%.
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