3rd quarter GDP numbers

Increase: 2% annual rate, above expectation of 1.5%


Comments:

• Government spending increases most in two years
• Business spending falling; await fiscal cliff resolution
• Housing purchases increase

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent. 

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and residential fixed investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the third quarter primarily reflected an upturn in federal government spending, a downturn in imports, an acceleration in PCE, a smaller decrease in private inventory investment, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by downturns in exports and in nonresidential fixed investment.
Read more at http://www.calculatedriskblog.com/2012/10/real-gdp-increased-20-annual-rate-in-q3.html#6hOy5wiSRpoW9MmD.99 


http://www.calculatedriskblog.com/2012/10/real-gdp-increased-20-annual-rate-in-q3.html

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Comprehensive discussion: http://www.ritholtz.com/blog/2012/10/gdp-better-thx-to-defense-spending/

GDP better thx to defense spending

 

By Peter Boockvar - October 26th, 2012, 8:13AM

GDP in Q3 rose 2.0%, better than expectations of 1.8% and an improvement from the 1.3% rise in Q2. Nominal GDP was up by 4.8%, well above the estimate of 3.9% as the Price Deflator was up by 2.8%, the 2nd most gain since Q3 ’08 and higher than the forecast of 2.1%. Personal Spending was up by 2%, actually a touch less than expected. Gross Private Investment was up by .5%, below the gain seen in Q2 as spending on equipment and software was flat after solid gains in previous quarters. Residential construction picked up some of that slack with a 14.4% rise. Trade was a modest drag as exports fell 1.6% while imports were lower by just .2%. Federal Government spending looks like the main driver of the better than expected headline print as it rose by 3.7% led by a 13% gain in defense spending. Spending at the state and local level fell by a .1%. Inventories were a tiny drag as they rose less than the gain seen in Q2. Real final sales, taking out the inventory influence, rose by 2.1% vs 1.7% in Q2 and 2.4% in Q1. Bottom line, 2% growth is about in line with the average seen over the past three years of 2.1% but the deceleration in trend is evident as the economy grew 2.4% in ’10, 1.8% in ’11 and averaging 1.8% in ’12. Mathematically, GDP should grow at population growth + productivity. Population is growing by 1% and productivity just 1% vs the 30 yr average productivity growth of 2.2%. We need more savings and investment for this, not more borrowing and spending pushed by gov’t monetary and fiscal policy.

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http://global.econoday.com/byshoweventfull.asp?fid=451307&cust=global-premium&year=2012&lid=0#top

2012 Economic Calendar

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United States : GDP Released On 10/26/2012 8:30:00 AM For Q3a:2012 Prior Consensus Consensus Range Actual Real GDP - Q/Q change - SAAR 1.3 % 1.9 % 1.0 % to 3.9 % 2.0 % GDP price index - Q/Q change - SAAR 1.6 % 2.0 % 1.4 % to 2.7 % 2.8 % Market Consensus before announcement GDP growth was unexpectedly revised down for the second quarter. The Commerce Department estimated growth at a mere 1.3 percent annualized pace, compared to the second estimate of 1.7 percent and advance estimate of 1.5 percent. The latest number was sharply slower than the 2.0 percent seen in the first quarter and especially the 4.1 percent boost posted for the fourth quarter of last year. Definition Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Real GDP growth is always quoted at a quarterly annual rate. It measures how much the economy has grown over a three-month period. Quarterly growth rates are often volatile; consequently, economists also like to look at the year-over-year growth in GDP. The yearly changes tend to be more stable. Data Source: Haver Analytics It is common to compare quarterly changes at annual rates in the GDP deflator. These can be volatile, just like the quarterly swings in real GDP growth; as a result, the trend in inflation is better determined by year- over- year changes. Data Source: Haver Analytics 2012 Release Schedule Released On: 1/27 2/29 3/29 4/27 5/31 6/28 7/27 8/29 9/27 10/26 11/29 12/20 Release For: Q4a: Q4p: Q4f: Q1a: Q1p: Q1f: Q2a: Q2p: Q2f: Q3a: Q3p: Q3f: A: Advance P: Preliminary F: Final ===================================== Another commentary http://www.ritholtz.com/blog/2012/10/a-closer-look-gdp-data/ A Closer Look GDP Data   By Barry Ritholtz - October 26th, 2012, 12:15PM Adventures in confirmation bias: The GDP data this morning was a deep sigh of relief for those people who fear a recession may be coming. I don’t have that sense of relief. Perhaps its my own bias, but the details of the GDP report reveal not an organic growth period in a healthy recovering economy, but rather a tepid post-credit crisis expansion highly dependent on government largesse and Federal Reserve accommodation. It is about what we should expect: Below-trend growth, as the economy gradually heals, individual and bank balance sheets slowly improve, and the excesses of the prior cycle get wrung out of the system. Consider the major factors within this GDP report: -Residential construction rose 14.4%. Housing is a bright spot; with sales and prices increasing.  However, this has been artificially goosed by the Fed’s ultra low rates and purchases MBS. Mortgage rates are at their lowest levels since WW2, and foreclosure abatements have created an appearance of reduced distress sales. So this portion of GDP is positive but artificial; it added about 0.3% to GDP. -Defense Spending rose by 13% — this added 0.6% to GDP.  This is not what we want driving GDP, but rather, Ii prefer to see private sector improvements. -Business Spending remains soft. Ignore the nonsensical “Uncertainty” trope; if demand were there, businesses would add personnel and make CapEx investments as necessary. (idiotic rationalizations spoon fed to the gullible do not count as intelligent economic analysis to me — and that includes “uncertainty”). -Slowing Exports (down 1.6%) took a few bips off of GDP. -Midwestern Drought I do recognize that the probably whacked almost half a percentage point from overall GDP numbers (0.1% times 4Qs for an annualized 0.4%). By my numbers, half of the GDP gains came from Fed/Uncle Sam. The slowdown in Europe and Asia are pressuring economic activity; the drought took away some of the gains, and without that, we should have seen some more strength. Overall, this report suggests that we are not yet in recession, yet, but are barely above stall speed — more like a 1.5% GDP ex-government interventions and drought. The improvements we are seeing seem to be driven mostly by Fed and government intervention. The key question, in light of the mediocre earnings season, is how long the propping up can continue. Sources: GROSS DOMESTIC PRODUCT: THIRD QUARTER 2012 (ADVANCE ESTIMATE) BEA, October 25, 2012 http://www.bea.gov/newsreleases/national/gdp/2012/pdf/gdp3q12_adv.pdf PERMALINK Category: Economy, Federal Reserve. -------------------------------- Another look:  http://www.calculatedriskblog.com/2012/10/comments-on-q3-gdp-and-investment.html Comments on Q3 GDP and Investment by Bill McBride on 10/26/2012 12:15:00 PM The Q3 GDP report was weak, with 2.0% annualized real GDP growth, but slightly better than expected. Final demand increased in Q3 as personal consumption expenditures increased at a 2.0% annual rate (up from 1.5% in Q2), and residential investment increased at a 14.4% annual rate (up from 8.5% in Q2). Investment in equipment and software was flat in Q3, and investment in non-residential structures was negative.   However, it appears the drag from state and local governments will end soon (after declining for 3 years). Overall this was another weak report indicating sluggish growth. The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy. For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue. The dashed gray line is the contribution from the change in private inventories. Click on graph for larger image. Residential Investment (RI) made a positive contribution to GDP in Q3 for the sixth consecutive quarter. Usually residential investment leads the economy, but that didn't happen this time because of the huge overhang of existing inventory, but now RI is contributing. The good news: Residential investment has clearly bottomed. The contribution from RI will probably continue to be sluggish compared to previous recoveries, but the ongoing positive contribution to GDP is a significant story. Equipment and software investment was unchanged in Q3 (compared to Q2). This followed twelve consecutive quarters with a positive contribution. The contribution from nonresidential investment in structures was negative in Q3. Nonresidential investment in structures typically lags the recovery, however investment in energy and power has masked the ongoing weakness in office, mall and hotel investment (the underlying details will be released next week). The second graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005. The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has added to GDP growth for the last 6 quarters (through Q3 2012). However the drag from state and local governments is ongoing, although the drag in Q3 was very small. State and local governments have been a drag on GDP for twelve consecutive quarters. Although not as large a negative as the worst of the housing bust (and much smaller spillover effects), this decline has been relentless and unprecedented. The good news is the drag appears to be ending. In real terms, state and local government spending is now back to 2001 levels, even with a larger population. Residential Investment as a percent of GDP is up from the record lows during the housing bust. Usually RI bounces back quickly following a recession, but this time there is a wide bottom because of the excess supply of existing vacant housing units. Last year the increase in RI was mostly from multifamily and home improvement investment. Now the increase is from most categories including single family. I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories. The last graph shows non-residential investment in structures and equipment and software. I'll add details for investment in offices, malls and hotels next week. The key story is that residential investment is continuing to increase, and I expect this to continue (although the recovery in RI will be sluggish compared to previous recoveries). Since RI is the best leading indicator for the economy, this suggests no recession this year or in 2013 (with the usual caveats about Europe and policy errors in the US). Earlier with revision graphs: • Real GDP increased 2.0% annual rate in Q3 Read more at http://www.calculatedriskblog.com/2012/10/comments-on-q3-gdp-and-investment.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29#KdtcmucAZ1v3zsOX.99