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USA | Nov 25, 2021

US economy grew by 2.1% in Q3

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Growth in private inventory investment, personal consumption expenditures, state and local government spending and non-residential fixed investment

The American economy grew by 2.1 per cent during the third quarter of 2021, based on the second estimate released by the US Bureau of Economic Analysis (BEA).

The economy grew by 6.7 per cent during the second quarter of 2021. The rise in third-quarter gross domestic product (GDP) reflected the continued economic impact of the COVID-19 pandemic.

The rise in real GDP in the third quarter reflected growth in private inventory investment, personal consumption expenditures (PCEs), state and local government spending and non-residential fixed investment. These were partly offset by falls in residential fixed investment, federal government spending, and exports.

Jump in inventory investment due mainly to rises in wholesale trade

Imports, which are a subtraction in the calculation of GDP, grew. The climb in private inventory investment reflected rises in wholesale trade (led by nondurable goods industries) and in retail trade (led by motor vehicles and parts dealers).

The climb in PCE reflected a rise in services that was partly offset by a fall in goods. Within services, rises were widespread with the largest contributions coming from “other” services (mainly international travel), transportation services, and health care.

“The rise in nonresidential fixed investment reflected a rise in intellectual property products (led by software and research and development) that was partly offset by falls in structures and equipment.”

United States Bureau of Economic Analysis

During the quarter, there was a decline in government assistance payments in the form of forgivable loans to businesses, grants to state and local governments and social benefits to households. The fall in goods primarily reflected a fall in spending on motor vehicles and parts.

According to the US BEA, “the rise in state and local government spending was led by employee compensation (notably, education). The rise in nonresidential fixed investment reflected a rise in intellectual property products (led by software and research and development) that was partly offset by falls in structures and equipment”.

The fall in residential fixed investment primarily reflected falls in improvements and in new single-family structures. The fall in federal government spending primarily reflected a fall in non-defense spending on intermediate goods and services 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 fall in exports reflected a fall in goods that were partly offset by a rise in services. The rise in imports primarily reflected a rise in services (led by travel and transport).

Gross Domestic Income rising as too corporate profits

Real gross domestic income (GDI) rose 6.7 per cent in the third quarter, compared with a climb of 4.3 per cent (revised) in the second quarter. The average of real GDP and real GDI, a supplemental measure of US economic activity that equally weights GDP and GDI, rose 4.4 per cent in the third quarter, compared with a climb of 5.5 per cent in the second quarter.

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) rose $121.4 billion in the third quarter, compared with a rise of $267.8 billion in the second quarter. Profits of domestic financial corporations rose $13.7 billion in the third quarter, compared with a rise of $52.8 billion in the second quarter.

Profits of domestic nonfinancial corporations rose $67.5 billion, compared with a rise of $221.3 billion. Rest-of-the-world profits rose $40.1 billion, in contrast to a fall of $6.2 billion. In the third quarter, receipts rose $43.1 billion, and payments rose $3.0 billion.

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