Daily Spotlight: GDP Reveals Consumer Strength

The Commerce Department reported that 3Q20 GDP rose at a 33.1% rate -- in line with the advance estimate that was announced last month. During the quarter, personal consumption expenditures soared at a 41% pace and contributed 61.5% of core demand (which we define as personal consumption expenditures, equipment & intellectual property spending, housing, exports and government expenditures). This is above the 10-year average, as the consumer sector, which is the most important component of the economy, has started to recover from the impact of the pandemic. Capital investments into equipment jumped 66% and accounted for a consistent 5.1% of total GDP, while capital investments into intellectual property rose 6% and accounted for a high 4.4% of total GDP (compared to the historical average of 3.6%). Exports remained under pressure (accounting of 8.9% of total demand, compared to historical average of 11.1%) as did government (down 5% and accounting for 16.3% of total demand, compared to historical average of 16.6%). We believe that U.S. GDP will recover to pre-COVID-19 levels by the end of 2021, but that sectors will recover at different paces. We look for consumer spending and capital investments into IP to be among the leading contributors to recovery.