Real GDP 2020

Two weeks ago, we looked at changes in employment by sector in 2020. This week we continue looking at sectoral change, this time using GDP statistics. Real Gross Domestic Product measures output. GDP starts with sales figures and then the price change is statistically removed so that what is left is output.

The numbers found in the table below show dollars of output. For example, real GDP went from $19.1 trillion* in Q3 2019 to $18.6 trillion in Q3 2020. This $545 billion reduction is independent of whatever price changes might have occurred*. It reflects only the quantity of goods and services produced. In Q3 2020 we got a smaller pile of goods and services than we got in Q3 of 2019. We say output fell.   

It is traditional to present real GDP figures in terms of the destination of the goods -- the buyers. Most students taking macroeconomics courses learn the equation for real GDP:

            

            Real GDP = C + I + G+ NX 

Where C represents Personal consumption expenditures (PCE) -- the output of goods and services that mostly went to consumers; I is Gross Private Domestic Investment (GPDI) which mostly goes to business firms for capital goods and to people who buy new houses; G is government purchases of goods and services; and NX measures the difference between goods and services exports and imports to foreign countries. 

The top of the table shows these summary categories. The parts of the table below the top break each of the main categories into output changes for very specific segments of each of the main categories. Since these breakdowns differ from the sectors presented last week for employment, we learn a little more about recent sectoral impacts this week.  

Let's start with the broader categories to describe most of 2020. The top line reports that real GDP fell by 2.8% from Q3 2019 to Q3 2020. Of the major categories, only 1 showed an increase in output over that year -- the government bought 3.6% more goods and services during that year. You see a 7.2% increase for net exports but that plus sign is misleading. I will say more about that below. Outputs bought by consumers and firms, in contrast, declined. GPDI fell by 3.4% and PCE by 2.8%. A quick summary would be to say that private (not government) domestic purchases declined in 2020. 

The PCE story is interesting. Overall it fell by 2.8% but notice that consumers kept on buying goods (+$347.2 billion) while they quit buying services (-$622 billion). All but one of the categories of goods, from motor vehicles (+7.3%) to food and beverages (+6.4%), increased. Gasoline and Other energy goods was the only main category of goods spending to show a decline (-9.9%).  PCE fell because of a reduction in the purchases of services. Recreation services (-34.3%) and Transportation Services (-24.1%) led the sectors downward. 

Gross Private Domestic Investment has three key parts: Non-residential investment, residential investment and inventory change. Thus we explain the $116 billion reduction in GPDI by those three categories. Of those three, Non-residential investment was the main negative component -- falling by about $125 billion. That was driven by reduced business spending on structures, equipment, and transportation equipment. Businesses did buy more information processing equipment (+$65.3 billion). 

The main positive part of GPDI in 2020 was residential construction -- or the building of new houses. That rose by almost $44 billion or 7.2% in 2020. 

The negative almost $48 billion showed that inventories fell in 2020. That negative number, therefore, is a positive sign that sales were higher than input. But since those were goods produced in an earlier time period, those sales actually subtract from output in 2020.

That leaves us with net exports -- a measure of international trade. While the US exported $950 billion of goods and services to the world during 2020, we also imported a little more than $1 trillion from the world. Thus we say we had a trade deficit in goods and services. Notice that both exports and imports declined in 2020. So we say that trade was lower. But since exports fell more than imports -- the trade deficit got bigger -- the negative number became even more negative. 

Finally is government spending on goods and services. Here we see vividly the impact of the power to print money. We see that a recession prevents state and local governments from spending more while the Federal government finds it possible to spend without increased tax revenues. The latter is not constrained legally from having gaping budgetary holes. And they can fund those holes by creating money. In the past year we saw state and local government spending falling by $35 billion while Federal government spending increased by almost $47 billion. 

* We can value output in terms of dollars and cents by using the prices that existed before the output changes. Thus the dollars and cents number only reflects the changes in output and NOT changes in prices. 

 

Source: bea.gov	2019	2020	$	%
Table	Q3	Q3	CHG	CHG
Part 1. Summary	billions	billions	billions
Gross domestic product (GDP)	19,141.7	18,596.5	-545.2	-2.8
Personal consumption expen.	13,301.3	12,924.7	-376.6	-2.8
Gross private domestic investment	3,445.7	3,329.6	-116.1	-3.4
Federal government spending	1,288.5	1,335.1	46.6	3.6
State and local government spending	2,028.3	1,993.1	-35.2	-1.7
Net Exports	-950.2	-1,019.0	-68.8	7.2
Part 2. Details
Personal consumption expen.	13,301.3	12,924.7	-376.6	-2.8
Goods	4,805.2	5,152.4	347.2	7.2
Durable goods	1,797.8	2,028.2	230.4	12.8
Motor vehicles and parts	535.1	574.1	39.0	7.3
Furnishings and durable household equipment	414.4	460.9	46.5	11.2
Recreational goods and vehicles	605.9	748.5	142.6	23.5
Other durable goods	263.5	284.0	20.5	7.8
Nondurable goods	3,023.9	3,154.5	130.6	4.3
Food and beverages purchased for off-premises consumption	991.6	1,055.0	63.4	6.4
Clothing and footwear	412.2	412.5	0.3	0.1
Gasoline and other energy goods	444.8	400.7	-44.1	-9.9
Other nondurable goods	1,156.5	1,249.5	93.0	8.0
Services	8,541.5	7,919.6	-621.9	-7.3
Household consumption expenditures (for services)	8,188.4	7,525.1	-663.3	-8.1
Housing and utilities	2,199.5	2,224.5	25.0	1.1
Health care	2,234.0	2,095.2	-138.8	-6.2
Transportation services	447.4	339.8	-107.6	-24.1
Recreation services	502.6	330.3	-172.3	-34.3
Food services and accommodations	847.1	680.1	-167.0	-19.7
Financial services and insurance	858.2	871.8	13.6	1.6
Other services	1,118.2	967.4	-150.8	-13.5
Gross private domestic investment	3,445.7	3,329.6	-116.1	-3.4
Fixed investment	3,378.9	3,314.7	-64.2	-1.9
Nonresidential	2,783.9	2,659.0	-124.9	-4.5
Structures	552.6	464.7	-87.9	-15.9
Equipment	1,263.3	1,230.1	-33.2	-2.6
Information processing equipment	494.3	559.6	65.3	13.2
Industrial equipment	251.4	236.1	-15.3	-6.1
Transportation equipment	277.1	220.2	-56.9	-20.5
Other equipment	252.2	247.0	-5.2	-2.1
Intellectual property products	974.0	981.1	7.1	0.7
Software	452.9	476.4	23.5	5.2
Research and development	442.7	439.5	-3.2	-0.7
Entertainment, literary, and artistic originals	83.9	74.5	-9.4	-11.2
Residential	601.9	645.5	43.6	7.2
Change in private inventories	44.0	-3.7	-47.7	-108.4
Net exports of goods and services	-950.2	-1,019.0	-68.8	7.2
Exports	2,536.6	2,166.5	-370.1	-14.6
Goods	1,775.8	1,610.5	-165.3	-9.3
Services	764.4	581.3	-183.1	-24.0
Imports	3,486.8	3,185.5	-301.3	-8.6
Goods	2,944.4	2,827.3	-117.1	-4.0
Services	545.2	393.3	-151.9	-27.9
Government consumption expenditures and gross investment	3,317.7	3,327.2	9.5	0.3
Federal	1,288.5	1,335.1	46.6	3.6
State and local	2,028.3	1,993.1	-35.2	-1.7

*These quarterly numbers have bee annualized.