Chronicling 100 Years of the U.S. Economy

December 2020
Volume 100, Number 12

GDP and the Economy

Second Estimates for the Third Quarter of 2020

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Real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020, according to the second estimates of the National Income and Product Accounts (NIPAs) (chart 1 and table 1).1 With the second estimate, real GDP growth was unrevised from the advance estimate issued last month. In the second quarter of 2020, real GDP decreased 31.4 percent.

The increase in real GDP in the third quarter reflected increases in consumer spending, inventory investment, exports, nonresidential fixed investment, and residential fixed investment that were partly offset by decreases in federal government spending and state and local government spending.2 Imports, which are a subtraction in the calculation of GDP, increased (chart 2 and table 1).

Except for federal government spending, all GDP components contributed to the upturn in real GDP in the third quarter. Imports turned up strongly.

  • Consumer spending was the main contributor to the upturn in real GDP, reflecting strong upturns in spending on both services and goods.
    • The upturns in spending on services were widespread, as “stay-at-home” orders to protect against the spread of COVID-19 eased in many parts of the United States (see “Impact of the Coronavirus (COVID-19) Pandemic on the Third-Quarter 2020 GDP Estimate”). The largest contributors to the upturn were health care (mainly hospitals and outpatient services), food services and accommodations (led by spending on purchased meals and beverages), and recreation services (led by spending on membership clubs, sports centers, parks, theaters, and museums).
    • The largest contributors to the upturn in spending on goods were upturns in clothing and footwear, in gasoline and other energy goods, and in “other” durable goods (mainly jewelry and watches as well as therapeutic appliances and equipment). Spending on motor vehicles and parts (mainly new light trucks) and “other” nondurable goods accelerated.
  • Exports turned up, reflecting upturns in exports of both goods and services.
    • The upturn in goods exports primarily reflected upturns in automotive vehicles, engines, and parts and in nonautomotive capital goods.
    • A smaller decrease in travel and an upturn in transport services were the leading contributors to the upturn in exports of services.
  • Inventory investment turned up, primarily reflecting an upturn in retail trade (led by motor vehicle and parts dealers) that was partly offset by downturns in nondurable goods manufacturing (mainly petroleum and coal product manufacturing and chemical manufacturing).
  • Nonresidential fixed investment turned up in the third quarter, primarily reflecting an upturn in spending on equipment. Investment in structures and intellectual property products decreased less in the third quarter than in the second quarter.
    • The upturn in equipment primarily reflected an upturn in transportation equipment (mainly light trucks).
    • The upturn in intellectual property products reflected upturns in research and development and in software investment, and a smaller decrease in entertainment, literary, and artistic originals.
    • The smaller decrease in structures investment was led by a smaller decrease in mining exploration, shafts, and wells.
  • Residential investment turned up, primarily reflecting upturns in “other” structures (mainly brokers' commissions and other ownership transfer costs) and in new single-family structures.
  • State and local government spending decreased less in the third quarter than in the second quarter, primarily reflecting a smaller decrease in consumption expenditures that was more than accounted for by an upturn in employee compensation.
  • Federal government spending turned down in the third quarter, reflecting a downturn in nondefense intermediate services purchased, as the costs associated with the processing and administration of Paycheck Protection Program loan applications by banks on behalf of the federal government decreased.
  • The upturn in imports reflected upturns in both goods and services, as international trade rebounded in the third quarter after being severely curtailed in the second quarter due to the COVID-19 pandemic.
    • The upturn in imports of goods was led by an upturn in imports of automotive vehicles, engines, and parts.
    • The upturn in imports of services was led by upturns in both travel and transport services.

Real gross domestic income, which is the sum of incomes earned and costs incurred in the production of GDP, increased 25.5 percent in the third quarter after decreasing 32.6 percent in the second quarter (revised).

Prices for gross domestic purchases, goods and services purchased by U.S. residents, increased 3.3 percent in the third quarter after decreasing 1.4 percent in the second quarter (table 2 and chart 3). The leading contributors to the upturn were upturns in the prices paid for consumer spending and for state and local government spending and a larger increase in prices for residential fixed investment.

Food prices decreased 1.7 percent in the third quarter after increasing 15.7 percent in the second quarter. Prices for energy goods and services increased 27.6 percent after decreasing 45.7 percent. Gross domestic purchases prices excluding food and energy turned up, increasing 3.1 percent after decreasing 0.8 percent.

Chart 3. Real GDP by Sector: Percent Change from Preceding Period

[Click chart to expand]

Consumer prices excluding food and energy, a measure of the “core” rate of inflation, turned up, increasing 3.5 percent in the third quarter after decreasing 0.8 percent in the second quarter.

Measured in current dollars, personal income decreased $530.9 billion in the third quarter, in contrast to an increase of $1.51 trillion (revised) in the second quarter (table 3). The decrease in personal income was more than accounted for by a decrease in government social benefits that was partly offset by increases in employee compensation and proprietors' income. The addenda in table 3 include detail on the effects of selected federal pandemic response programs on personal income.

  • Within government social benefits, “other” social benefits and unemployment insurance decreased, primarily reflecting the expiration of one-time economic impact payments to individuals authorized by federal recovery legislation, including the Coronavirus Aid, Relief, and Economic Security Act, and supplemental pandemic unemployment compensation payments. These decreases were partly offset by lost wage supplemental payments from the Federal Emergency Management Administration program that provided wage assistance to individuals impacted by the pandemic.
  • Within compensation, the leading contributor to the increase was private wages and salaries, mainly in services-producing industries. Government wages and salaries also increased.
  • Within proprietors' income, the increase was largely in nonfarm. Payments from the Paycheck Protection Program, which provided small nonfarm businesses with forgivable loans, were $297.1 billion in the third quarter, which followed initial payments of $209.1 billion that took effect in the second quarter.

Personal current taxes increased $90.1 billion in the third quarter after decreasing $155.9 (revised) billion in the second quarter.

Disposable personal income (DPI) decreased $621.0 billion in the third quarter after increasing $1.66 trillion (revised) in the second quarter. Personal outlays increased $1.29 trillion after decreasing $1.51 trillion in the second quarter.

The personal saving rate (chart 4)—personal saving as a percentage of DPI—was 16.1 percent in the third quarter; in the second quarter, the personal saving rate was 26.0 percent (revised).

Real DPI (chart 5) decreased 16.0 percent in the third quarter after increasing 48.6 percent (revised) in the second quarter. Current-dollar DPI decreased 12.9 percent after increasing 46.2 percent (revised).

With the release of the second estimate of GDP, the Bureau of Economic Analysis (BEA) also released revised estimates of second-quarter 2020 wages and salaries, personal taxes, contributions for social insurance, and gross domestic income (GDI). These estimates reflect new data for second-quarter private wages and salaries from the Bureau of Labor Statistics Quarterly Census of Employment and Wages. As a result:

  • Wages and salaries is now estimated to have decreased $617.3 billion in the second quarter, an upward revision of $64.8 billion.
  • Personal income is now estimated to have increased $1.51 trillion, an upward revision of $60.7 billion.
  • Real DPI is now estimated to have increased 48.6 percent; in the previously published estimate, real DPI increased 46.6 percent.
  • The personal saving rate is now estimated at 26.0 percent; in the previously published estimate, the personal saving rate was 25.7 percent.
  • Real GDI is now estimated to have decreased 32.6 percent in the second quarter (table 1); in the previously published estimate, real GDI decreased 33.5 percent.

 

Real GDP increased 33.1 percent in the third quarter of 2020, the same increase as previously reported in the advance estimate (table 4). Upward revisions to nonresidential fixed investment, residential fixed investment, and exports were offset by downward revisions to state and local government spending, private inventory investment, and consumer spending. Imports were revised up.

  • Within nonresidential fixed investment, an upward revision to intellectual property products was partly offset by a downward revision to equipment.
    • The upward revision to intellectual property products primarily reflected upward revisions to research and development and to software.
    • For equipment, the largest contributors to the downward revision were information processing equipment (notably, communication equipment).
  • The upward revision to residential investment was led by single-family structures.
  • Within exports, the upward revision was to services, notably other business services.
  • Within state and local government spending, the revision reflected a downward revision to investment in structures.
  • Within private inventory investment, a downward revision to manufacturing was partly offset by an upward revision to retail trade.
  • Within consumer spending, a downward revision to services was mostly offset by an upward revision to goods.
    • The downward revision to services primarily reflected downward revisions to “other” services (led by legal services and childcare), transportation services (notably, air), and housing and utilities (notably, electricity and gas). These downward revisions were partly offset by an upward revision to health care (notably, home health care and medical laboratories).
    • Within goods, upward revisions to clothing and footwear as well as furnishings and household equipment were partly offset by a downward revision to motor vehicles, mainly used motor vehicles.
  • Within imports, the upward revision was primarily attributable to industrial supplies and materials, notably durable goods.

Measured in current dollars, profits from current production (corporate profits with the inventory valuation adjustment (IVA) and the capital consumption adjustment (CCAdj)) increased $495.3 billion, or 27.1 percent at a quarterly rate, in the third quarter after decreasing $208.9 billion, or 10.3 percent, in the second quarter (table 5). Profits of domestic financial corporations increased $24.5 billion, profits of domestic nonfinancial corporations increased $431.2 billion, and rest-of-the-world profits increased $39.6 billion.

Profits after tax (without the IVA and the CCAdj), BEA’s profits measure that is conceptually most like Standard and Poor’s 500 profits, increased $569.6 billion in the third quarter.

 

 


  1. “Real” estimates are in chained (2012) dollars, and price indexes are chain-type measures. Each GDP estimate for a quarter (advance, second, and third) incorporates increasingly comprehensive and improved source data; for more information, see “The Revisions to GDP, GDI, and Their Major Components” in the January 2018 Survey of Current Business. Quarterly estimates are expressed at seasonally adjusted annual rates, which reflect a rate of activity for a quarter as if it were maintained for a year.
  2. In this article, “consumer spending” refers to “personal consumption expenditures,” “inventory investment” refers to “change in private inventories,” and “government spending” refers to “government consumption expenditures and gross investment.”