In the second quarter of 2021, real GDP surged and returned its pre-pandemic level as the economy continued to reopen. This quarter’s growth reflected strong gains for consumer and state and local government spending. However, the second quarter gain did come in below consensus estimates.
According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 6.5% in the second quarter of 2021, after a 6.3% increase in the first quarter of 2021. It marked the second strongest growth rate since the third quarter of 2003 (excluding the third quarter of 2020 of course) but was below NAHB’s forecast of more than 8%.
The gain in real GDP in the second quarter of 2021 reflected increases in personal consumption expenditures (PCE), which alone accounts for about 70 percent of the overall economy, as well as gains for nonresidential fixed investment, residential fixed investment, exports and government spending.
Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 11.8%, following an increase of 11.4% in the first quarter. The expansion in consumer spending reflected increases for both services and goods. The increase for the service economy is a reminder of the broader reopening trend. Goods spending increased 11.6% at an annual rate, led by “other” nondurable goods (+21.2%), notably pharmaceutical products. Expenditures on services increased 12.0% at an annual rate, mainly reflecting increases in food services and accommodation (+67.8%).
While nonresidential fixed investment rose 8.0%, residential fixed investment (RFI) fell 9.8% in the second quarter, after a 13.3% increase in the first quarter of 2021. The increase in nonresidential fixed investment reflected investments in equipment (+13.0%) and intellectual property products (+10.7%). The decline in residential fixed investment reflected the supply-side challenges including rising material costs and supply chain shortage.
State and local government spending increased in the second quarter, while federal government spending decreased due to a decline in nondefense spending on intermediate goods and services. Meanwhile, exports grew 6.0%, and imports, which are a subtraction in the calculation of GDP, increased 7.8%.