Chronicling 100 Years of the U.S. Economy

July 2021
Volume 101, Number 7

GDP and the Economy

Third Estimates for the First Quarter of 2021

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Real gross domestic product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021, according to the third estimates of the National Income and Product Accounts (NIPAs) (chart 1 and table 1).1 With the third estimate, real GDP growth for the first quarter was unrevised from the second estimate issued last month (see“Updates”). In the fourth quarter of 2020, real GDP increased 4.3 percent.

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

The acceleration in real GDP growth in the first quarter reflected the continued economic recovery from the COVID-19 pandemic as government assistance payments were distributed to households and businesses. An acceleration in consumer spending and upturns in federal as well as state and local government spending more than accounted for the acceleration in real GDP. These were partly offset by downturns in private inventory investment and exports and by decelerations in residential fixed investment and nonresidential fixed investment. Imports slowed.

  • The acceleration in consumer spending reflected an upturn in spending on goods. All components of both durable and nondurable goods contributed to the upturn. The leading contributors were upturns in spending on motor vehicles and parts, food and beverages purchased for off-premises consumption, furnishings and durable household equipment, and recreational goods and vehicles.
  • The upturn in federal government spending was more than accounted for by an upturn in nondefense consumption expenditures on intermediate goods and services purchased by government. In the first quarter, the processing and administration of Paycheck Protection Program loan applications by banks on behalf of the federal government added approximately $13.2 billion ($52.6 billion at an annual rate) to nondefense services. Federal government purchases of COVID-19 vaccines for distribution to the public contributed to the upturn in nondefense goods.
  • The upturn in state and local government spending reflected an upturn in consumption expenditures, led by compensation of employees, that was partly offset by a downturn in gross investment, led by a downturn in structures.
  • The downturn in private inventory investment was led by a downturn in manufacturing and a larger decrease in retail trade. The downturn in manufacturing reflected downturns in both durable and nondurable goods industries. Within retail trade, the larger decrease primarily reflected a larger decrease in inventory investment by motor vehicle dealers.
  • The downturn in exports reflected downturns in both goods, led by downturns in industrial supplies and materials and in foods, feeds, and beverages, and services, led by a downturn in royalties and license fees, and a deceleration in transport services.
  • Residential fixed investment slowed, largely reflecting a slowdown in new residential structures, notably single-family units, and a downturn in brokers' commissions.
  • Nonresidential fixed investment slowed, reflecting a slowdown in investment in equipment that was partly offset by an acceleration in intellectual property products and a smaller decrease in investment in structures.
    • The slowdown in equipment investment primarily reflected a slowdown in transportation equipment that was partly offset by an acceleration in information processing equipment.
    • The acceleration in intellectual property products was more than accounted for by a pickup in software investment.
    • The smaller decrease in structures was more than accounted for by an upturn in investment in structures for manufacturing.
  • Imports slowed. As a subtraction in the calculation of GDP, the slowdown in imports contributed to the acceleration in first-quarter GDP. The main contributor was a downturn in automotive vehicles, engines, and parts.

The third estimate of GDP includes estimates of GDP by industry, or value added—a measure of an industry's contribution to GDP. In the first quarter, private goods-producing industries increased 5.4 percent, private services-producing industries increased 7.7 percent, and government increased 0.2 percent (table 2 and charts 3 and 4). Overall, 17 of 22 industry groups contributed to the fourth-quarter increase in real GDP.

  • The increase in private goods-producing industries primarily reflected an increase in durable goods manufacturing, led by computer and electronic products, fabricated metal products, and machinery. The increase was partly offset by decreases in nondurable goods manufacturing, led by petroleum and coal products, and agriculture, forestry, fishing, and hunting, led by farms.
Chart 3. Real GDP by Sector: Percent Change from Preceding Period

[Click chart to expand]

  • The increase in private services-producing industries primarily reflected increases in professional, scientific, and technical services; information, led by data processing, internet publishing, and other information services; administrative and waste management services, led by administrative and support services; real estate and rental and leasing; and retail trade. These increases were partly offset by decreases in other services (which includes activities of political organizations), health care and social assistance, led by ambulatory health care services, and utilities.
  • The increase in government reflected increases in federal as well as state and local spending.

Gross output by industry—principally a measure of an industry’s sales or receipts, which includes sales to final users in the economy (GDP by expenditure) and sales to other industries (intermediate inputs)—increased 8.9 percent in the first quarter. Private goods-producing industries decreased 1.7 percent, private services-producing industries increased 13.4 percent, and government increased 6.0 percent (table 3 and chart 5). Overall, 17 of 22 industry groups contributed to the increase in real gross output, led by retail trade, finance and insurance, and information. A decrease in nondurable goods manufacturing was the most notable offset to these increases.

Chart 5. Real Gross Output by Selected Industries: Percent Change from Preceding Period

[Click chart to expand]

Prices for gross domestic purchases—goods and services purchased by U.S. residents—increased 4.0 percent in the first quarter after increasing 1.7 percent in the fourth quarter (table 4 and chart 6). The pickup mainly reflected accelerations in the consumer prices for gasoline and other energy goods and for health care.

Food prices decreased slightly in the first quarter after being unchanged in the fourth quarter. Prices for energy goods and services increased 45.8 percent after increasing 9.1 percent. Gross domestic purchases prices excluding food and energy increased 3.3 percent after increasing 1.6 percent.

Chart 6. Prices for Gross Domestic Purchases

[Click chart to expand]

In the third estimate for the first quarter, real GDP increased at the same rate as previously reported in the second estimate (table 5). The updated estimates primarily reflected upward revisions to nonresidential fixed investment, private inventory investment, exports, and consumer spending that were offset by an upward revision to imports (which are a subtraction in the calculation of GDP).

  • Within nonresidential fixed investment, the revision reflected upward revisions to investment in structures, notably, warehouses, and in equipment, notably, communication equipment and computers and peripheral equipment. Partly offsetting these upward revisions was a downward revision to intellectual property products, notably, software.
  • The revision to private inventory investment reflected an upward revision to nonfarm inventories, notably in information industries.
  • Within exports, the leading contributor to the upward revision was goods exports, notably, foods, feeds, and beverages.
  • Within imports, the leading contributor to the upward revision was also goods, notably nonautomotive consumer and capital goods.
  • Within consumer spending, an upward revision to goods was mostly offset by a downward revision to services.
    • Within goods, the leading contributors to the revision were upward revisions to food and beverages and other nondurable goods.
    • Within services, downward revisions to health care, notably, physicians services and home health care, and transportation services, notably, motor vehicle maintenance and repair, were partly offset by upward revisions to financial services and insurance, notably, portfolio management and investment advice services, and recreation services, notably, casino gambling.

Measured in current dollars, profit from current production (corporate profits with the inventory valuation adjustment (IVA) and the capital consumption adjustment (CCAdj)) increased $55.2 billion in the first quarter, in contrast to a decrease of $31.4 billion in the fourth quarter (table 6). Profits of domestic financial corporations decreased $6.4 billion, in contrast to an increase of $17.5 billion. Profits of domestic nonfinancial corporations increased $72.1 billion, in contrast to a decrease of $48.2 billion. Rest-of-the-world profits decreased $10.6 billion, compared with a decrease of $0.7 billion. In the first quarter, receipts increased $34.2 billion and payments increased $44.8 billion.

Estimates of corporate profits were affected by a legal settlement paid by Boeing in the first quarter. The NIPAs record these settlements on an accrual basis in the quarter when the settlement is finalized, regardless of when they are recorded on a company's financial statement. The settlement agreement paid by Boeing totaled $2.5 billion ($10.1 billion at an annual rate) and reflected payments of $0.2 billion to the federal government, $0.6 billion to the air transportation industry, and $1.7 billion to the “rest of the world.”

Industry profits (corporate profits by industry with IVA) increased $54.4 billion, or 2.4 percent at a quarterly rate, in the first quarter of 2021 after decreasing $28.5 billion, or 1.2 percent, in the fourth quarter (table 7 and chart 7). The increase reflected increases in “other” nonfinancial industries (more than accounted for by mining), retail trade, and manufacturing industries.

Profits after tax (without IVA and CCAdj)—BEA's profits measure that is conceptually most like the profits for companies in the Standard & Poor's 500 Index—increased $145.3 billion in the first 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.”