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2Q21 GDP: Slower Than Expected

July 29, 2021
Bottom Line:  The advance reading of 2nd Quarter GDP showed slower than expected growth as residential investment was a surprising drag on growth.  Coming in at 6.5% annualized quarter-on-quarter growth, the reading was only slightly higher than growth in the 1st Quarter and well below some estimates for 10+% growth.  Consumption contributed nearly 8 points to growth on the quarter as net exports, inventory investment, and government purchases proved a drag, in addition to the surprising drag from housing-related investment.  We suspect that the residential investment figures will get revised higher.  Still, the report shows that economic growth remains volatile deep into the recovery from the initial impact of the pandemic.  The dependence on consumption and the potential that growth in both business and residential investment has peaked means the risks are that growth in the 2nd half of 2021 is slower than in the 1st half.
Gross Domestic Product ROSE by 6.5% in the 2nd Quarter, higher than market expectations for an increase of 5.4%.  Economic activity was 12.2% ABOVE its year-ago level.
Inventory Investment FELL by $77.6 billion, subtracting 1.13 percentage points from overall economic activity. Consequently, Real Final Sales ROSE by 7.7% and was 11.2% ABOVE its year-ago level.
Additionally, Imports ROSE by 9.0% and Exports ROSE by 5.3% so Net Exports FELL by $46.7 billion. This implies that Real Final Domestic Demand ROSE by 7.9% and was 12.9% ABOVE its year-ago level.
Consumer Spending ROSE by 11.8%, contributing 7.78 percentage points to economic growth.
Business Investment ROSE by 8.0%, adding 1.06 percentage points to GDP.  Intellectual property products increased by 10.7% while non-residential structures declined by 6.9%.

Residential Investment
FELL by 9.8%, subtracting 0.49 percentage points to economic growth.
Finally, Government Purchases FELL by 1.5%, subtracting 0.27 percentage points to GDP. This was its 4th negative contribution in the last 12 quarters.

The GDP Price Index
ROSE by 6.3%, compared with market expectations of 5.4%. This is also 4.1% ABOVE its year-ago level.