The USA Bureau of Economic Analysis published the estimate of GDP for 2020, including Q4. Figure 1 shows the measured fall of the real GDP by 3.5% in 2020 relative to 2019. The real GDP per capita fell by 4% as Figure 2 demonstrates. Therefore, the population growth in 2020 was 0.5% relative to 2019. One of the main economic problems in 2020 was the incredible jump in the unemployment and corresponding fall in wages and salaries. However, Figure 3 presents a reasonable drop in the Personal Consumption Expenditures which has to be directly related to personal income. Gross private domestic investment also does not demonstrate too poor performance. The question is – where the money from?
Figure 5 provides a high-level answer – the share of “compensation of employees”, which includes “wages and salaries” as the bigger part experienced 8.1% of the real GDP fall in 2020Q2. At the same time, the share of “Government social benefits to persons” increased by 10.7% of the GDP, i.e. from $3,109 billion in 2019Q4, to $3,189 bn in 2020Q1, and $5,627 bn in 2020Q2. This gives a jump by $2.438 bn from Q1 to Q2, i.e. the well-known 2.5 trillion virus bill. This money was poured into social benefits and finally was found in the PCE. By virtue of origin, this is debt and cannot be a part of real GDP. It was not taken from the real economy as taxes. This is not the case in the USA and the PCE was calculated as if the source of income is fully internal.
Figure 6 depicts an absolute outstanding curve – the ratio of Personal Income (BEA Table 2.1) and the current dollar GDP between 2001 and 2020. In the second quarter of 2020, the ratio was 1.04 (!) with the level in normal conditions around 0.85. The personal income was above the GDP. This is the first time in the history of measurements since 1947, as Figure 7 shows. Figure 8, displays the PI growth rate: in 2009 it was -3.1% and in 2020 the PI grew by 6.3%.
The real GDP published by the BEA is not correct and one has to subtract the money added to the economy as debt. The total amount of added (debt) money is $3.952 bn if to continue the measured line in Figure 6 at the level of 0.87. For the real GDP calculation, we have to correct for the inflation between 2012 and 2020 and then obtain $3,473 bn in 2020. When subtracted from the estimated real GDP of $18,422.6 bn the corrected real GDP is $14,948 bn. In 2019, the real GDP was $19,092 bn.
In reality, the US economy fell in 2020 by 21.7% relative to 2019.
Figure 1. The growth rate of real GDP in 2020 is -3.5%Figure 2. The growth rate of real GDP per capita in 2020 is -3.99%
Figure 3. The growth rate of Personal Consumption Expenditures in 2020 is -3.9%
Figure 4. The growth rate of Gross private domestic investment in 2020 is -5.3%
Figure 5. The share of “compensation of employees” in the GDP fell from 0.616 in 2020Q1 to 0.535 in 2020Q2, i.e. by 8.1% of real GDP. The share of “Government social benefits to persons” in the GDP jumped from 0.168 in 2020Q1 to 0.275 in 2020Q2, i.e. by 10.7% of real GDP.
Figure 6. The share of Personal Income in the GDP jumped from 0.862 in 2019Q4 to 0.879 in 2020Q1 and 1.048 in 2020Q2.
Figure 7. Historically, the Personal Income share in the GDP has never been above 0.86 between 1947 and 2020.
Figure 8. The change rate of the Personal Income. In 2020, the PI increased by 6.3%, In 2009, the fall was 3.1%.