Final Q3 GDP estimate: 2.6%

posted at 8:50 am on December 22, 2010 by Ed Morrissey

The Bureau of Economic Analysis released its final estimate of economic growth in the third quarter, revising it upward for the second time to 2.6% from an original estimate of 2.0% at the end of October.  The upward estimate of annualized growth in the third quarter comes mainly from personal consumption and business investment, especially in inventory, not surprising considering the holiday retail season’s approach.  Exports also increased, but at a slower rate than in the previous quarter:

Real personal consumption expenditures increased 2.4 percent in the third quarter, compared with an increase of 2.2 percent in the second. Real nonresidential fixed investment increased 10.0 percent, compared with an increase of 17.2 percent. Nonresidential structures decreased 3.5 percent, compared with a decrease of 0.5 percent. Equipment and software increased 15.4 percent, compared with an increase of 24.8 percent. Real residential fixed investment decreased 27.3 percent, in contrast to an increase of 25.7 percent.

Real exports of goods and services increased 6.8 percent in the third quarter, compared with an increase of 9.1 percent in the second. Real imports of goods and services increased 16.8 percent, compared with an increase of 33.5 percent.

Real federal government consumption expenditures and gross investment increased 8.8 percent in the third quarter, compared with an increase of 9.1 percent in the second. National defense increased 8.5 percent, compared with an increase of 7.4 percent. Nondefense increased 9.5 percent, compared with an increase of 12.8 percent. Real state and local government consumption expenditures and gross investment increased 0.7 percent, compared with an increase of 0.6 percent.

The change in real private inventories added 1.61 percentage points to the third-quarter change in real GDP, after adding 0.82 percentage point to the second-quarter change. Private businesses increased inventories $121.4 billion in the third quarter, following increases of $68.8 billion in the second quarter and $44.1 billion in the first.

The inventory addition is a potential problem.  Without the expansion of inventory, Q3 GDP would be just under 1%.  The impact in Q3 was about twice that in Q2, which means that businesses have anticipated somewhat higher demand.  In fact, as the report states, the actual measure of final sales in Q3 is exactly what it was in Q2 — 0.9%, after subtraction of inventory expansion.  The same was true in 2009 Q4 and to a lesser extent in 2010 Q1, where the expansion of inventory failed to get matched to any expansion in demand.

What changed between the second and third estimates?  The data on inventory showed a greater expansion than first thought, and that was offset somewhat by a lower-than-estimated level of personal consumption.  While the overall number went up thanks to added inventory, the actual sales data remained flat from Q2.  If people start spending money in the holiday season, then the inventory expansion will be no problem in following quarters.  If not, retailers and wholesalers will be forced to heavily discount to move the stock, which will impact bottom lines in the next couple of quarters.

It’s not an awful number, but this isn’t really good news, either.  It shows sales maintaining a flat level throughout the middle of the year, and a 2.6% GDP rate is about half of what’s needed for massive expansion of job creation.  This economy is simply not igniting.

Update: Market News calls the estimate “disappointing,” and makes the same point I did:

This composition lowered real final sales to just +0.9%, a very modest pace that shows little momentum. Real final sales “surged” to +2.1% in Q4:2009 and then calmed to a pace that has averaged just +1% in the three quarters recorded so far in 2010. Hopefully higher consumer spending for the holidays will bolster consumption in Q4.

Still notable in Q3 was a downturn in residential fixed investment at -27.3%, its worst performance since Q1:2009. This came about after the homebuyer tax credit expired.

One note about pinning hopes to holiday sales: that will be only a temporary bump at best.  With sales flat for a year, retailers aren’t going to rush to fill inventory, especially if they have to heavily discount it to move.

Update II: Reuters tries painting a rosy picture, but the futures market isn’t buying it.

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The numbers are being propped up by counterfeiting by the Fed.

PatriotRider on December 22, 2010 at 8:54 AM

Joe effing Biden predicted several qtrs of >7% growth.

Stand up Joe, gotta love ya…

ted c on December 22, 2010 at 8:55 AM

Disappointing!
=========================

Wednesday, December 22, 2010 – 08:41
ANALYSIS: Q3 GDP +2.6%, Final Sls +0.9%: Weak SetUp for Q4
———————————————————-

WASHINGTON (MNI) – The last estimate for Q3 real GDP growth was +2.6%, and this proved disappointing against expectations for +3% and takes away some momentum going into Q4.

http://imarketnews.com/node/24254

canopfor on December 22, 2010 at 8:55 AM

This is all that damned Fox News’s fault!

Good Lt on December 22, 2010 at 8:56 AM

The numbers are being propped up by counterfeiting by the Fed.

I assume you mean QE2, but that didn’t start until Q4.

Ed Morrissey on December 22, 2010 at 8:57 AM

Mediocrity!
The new normal

darwin on December 22, 2010 at 8:58 AM

You know, if only we taxed people more. Then the government would have more money to spend on the people they took money from, but only after they formed huge bureacracies to determine how to spend it.

darwin on December 22, 2010 at 9:00 AM

Let the spin begin

cmsinaz on December 22, 2010 at 9:01 AM

Is “disappointing” the new “unexpected”?

NoFanofLibs on December 22, 2010 at 9:02 AM

Will this one be adjusted downward later, too?

SlaveDog on December 22, 2010 at 9:09 AM

Oh yeah, the future’s so bright, we gotta wear shades!

Provided we can afford the damn things!

pilamaye on December 22, 2010 at 9:10 AM

Ugh!
=============================================

What you need to know before markets open
December 22, 2010 5:46 AM

NEW YORK

U.S. stock index futures were flat Wednesday after fours days of gains drove the S&P 500 to new highs, leaving the index near levels reached just before Lehman Brothers went bankrupt two years ago.

FACTORS TO WATCH

Read more: http://www.vancouversun.com/business/What+need+know+before+markets+open/4013281/story.html#ixzz18qjkgbQd

canopfor on December 22, 2010 at 9:11 AM

The numbers are being propped up by counterfeiting by the Fed.
I assume you mean QE2, but that didn’t start until Q4.

Ed Morrissey on December 22, 2010 at 8:57 AM

The numbers reflect QE1 and all of the “stimulus” which should be properly labeled as “QE”, since the $$ were digitally created out of thin air and re-purchased by the Fed.

PatriotRider on December 22, 2010 at 9:12 AM

Oh yeah, the future’s so bright, we gotta wear shades!

Provided we can afford the damn things!

pilamaye on December 22, 2010 at 9:10 AM

pilamaye:U-betcha:)
=======================================================

I Wear My Sunglasses at Night with Lyrics

http://www.youtube.com/watch?v=VxIwRDs1Yc8&feature=related

canopfor on December 22, 2010 at 9:14 AM

How long until we get the “unexpected” adjustment down to 1.6%?

IUnknown on December 22, 2010 at 9:15 AM

Gold firms as US dollar retreats
Dec 22 2010 at 03:42PM
=================================

Gold firmed in Europe on Wednesday, building on three straight sessions of gains, as the dollar retreated and as warnings from credit rating agencies on some euro zone economies boosted haven demand for the metal.

GROWTH DATA EYED

The financial markets are now awaiting third-quarter growth data from the United States later.

“The release of U.S. Q3 GDP figures later (to)day could well be dollar supportive, if as expected they are revised upwards to 2.8 percent from the previous 2.5 percent,” said CMC Markets analyst Michael Hewson.

http://www.iol.co.za/business/markets/commodities/gold-firms-as-us-dollar-retreats-1.1004250

canopfor on December 22, 2010 at 9:25 AM

Oh yeah, the future’s so bright, we gotta wear shades!

Provided we can afford the damn things!

pilamaye on December 22, 2010 at 9:10 AM

more like THEY LIVE!

PUT THE GLASSES ON!
(15 minute fight scene)

“I am here to chew bubblegum and kick a$$, and I am all out of bubble gum.”

orbitalair on December 22, 2010 at 9:27 AM

Update II: Reuters tries painting a rosy picture, but the futures market isn’t buying it.

“Insanity is doing the same thing over and over again and expecting different results.” ~ Albert Einstein

If you haven’t noticed, the world is full of people who appear normal but by Einstein’s standard are insane. The problem for us is that the majority of them are in the MSM (Reuters included) and the rest are politicians and government “leaders.”

PatriotRider on December 22, 2010 at 9:28 AM

PatriotRider on December 22, 2010 at 8:54 AM

You are 100% correct. Moreover, if anyone visits their local unemployment office (as I had to do on Monday) you will find the place wall to wall with people.

Another “unadjusted” 486,000 people hit the bricks the week ending Dec. 11.

dogsoldier on December 22, 2010 at 9:47 AM

DADT, Obama live Streaming

canopfor on December 22, 2010 at 9:35 AM

Please, don’t.

cntrlfrk on December 22, 2010 at 9:51 AM

I’ve turned the thermostat down, wearing TWO sweaters, wrapped in a blanket, and I’m miserable. I’m doing my part! (to raise the misery index and build the national malaise.) What about you?

Skandia Recluse on December 22, 2010 at 10:47 AM

Update II: Reuters tries painting a rosy picture, but the futures market isn’t buying it.

Not sure what you thought you were citing, but this is what your link about futures shows:

Stocks edged higher on Wednesday as financial stocks helped extend four days of gains that drove the S&P 500 to levels not seen since before Lehman Brothers went bankrupt two years ago.

Oops! Accidental good financial news on HotAir!

tneloms on December 22, 2010 at 11:39 AM

tneloms on December 22, 2010 at 11:39 AM

This…

Energy shares rose as crude oil futures hit a two-year high, approaching $91 a barrel.

…isn’t good news for consumers who will end up paying more for gas in February. January futures oil futures contracts are closing at around $88 per barrel, up from the December futures contracts so we’ll be paying more in January, as well. I’ve seen estimates that oil could be trading for as much as $120 per barrel in the coming months. Probably a combination of increased demand and a falling dollar.

Euro futures continue to fall against the dollar, so I guess we should be greatfull we’re not over there…

karl9000 on December 22, 2010 at 1:38 PM

So the food/energy inflation rate is higher than the GDP increase without inventories? Sounds like people might be stockpiling those inventories for when it becomes too expensive to buy more or ship them anywhere.

cthulhu on December 22, 2010 at 2:20 PM

Where are the jobs???

CWforFreedom on December 22, 2010 at 2:40 PM

CWforFreedom on December 22, 2010 at 2:40 PM

There are no jobs. In fact every week at least another 400,000 people lose theirs. Last week’s numbers and this weeks should be special.

dogsoldier on December 22, 2010 at 3:54 PM