An Inside Look at the GDP Q3 Advance Estimate
Note: The charts in this commentary have been updated to include the Q3 2020 Advance Estimate released this week.
The chart below is a way to visualize real GDP change since 2007 and uses a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics:
Real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 31.4 percent.
The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 2). The "second" estimate for the third quarter, based on more complete data, will be released on November 25, 2020.
Let's take a closer look at the contributions of GDP of the four major subcomponents. The data source for this chart is the Excel file accompanying the BEA's latest GDP news release (see the links in the right column). Specifically, it uses Table 2: Contributions to Percent Change in Real Gross Domestic Product.
Note: The conventional practice is to round GDP to one decimal place, the latest at 33.1%.
Here is a chart of the latest estimates.
Over the time frame of this chart, the Personal Consumption Expenditures (PCE) component has shown the most consistent correlation with real GDP itself. When PCE has been positive, GDP has usually been positive, and vice versa. In the latest GDP data, the contribution of PCE came at 25.27 of the 33.1 real GDP, an increase from the previous revision and a record high.
Gross Private Domestic Investment was a slightly negative contributor.
Net Exports were negative in Q3.
Government Consumption Expenditures came in as a positive contributor.
As for the role of Personal Consumption Expenditures (PCE) in GDP and how it has increased over time, here is a snapshot of the PCE-to-GDP ratio since the inception of quarterly GDP in 1947. To one decimal place, the latest ratio of 69.5% is at its record high and above the levels seen during the last recession.