GDP bounces back to 2.5%

The Obama administration could use a little good news, even if it’s tempered by low expectations.  It got exactly that this morning from the Bureau of Economic Analysis, with its advance estimate of third-quarter growth.  The rate increased to 2.5%, up from Q2′s final 1.3%:

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 2.5 percent in the third quarter of 2011, (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 Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3).  The “second” estimate for the third quarter, based on more complete data, will be released on November 22, 2011.

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

This may actually understate the improvement in growth from Q2.  Inventory adjustments worked against the growth number in Q3, as real final sales of domestic product actually increased at a 3.6% annualized rate.  That’s good news for later quarters; as businesses burn through their accumulated inventories, we can expect orders for goods to increase and manufacturing to benefit.

Any improvement is good news.  This is rather mild improvement, considering the depth of the recession and the stagnation of the so-called “recovery” the past two years.  We should be seeing a much more robust growth by this time, and 2.5% isn’t even a decent maintenance level for a healthy economy, which would be in the 3% range.  It will take a lot more growth than this to generate jobs in a quantity that will reduce chronic unemployment, and that higher growth will have to sustain itself for a couple of years to ensure success.

Speaking of jobs, weekly initial claims came it an 402,000, almost unchanged from last week’s 404,000.  That gives no indication of significant growth or decline, but it keeps the claims figure at the 400-420K level it has inhabited since early in Q2.

Reuters offers a sunny take on the numbers, although its report also notes that some temporary conditions account for it.  Those factors were a rapid escalation of gas prices and the impact of the quake and tsunamis in Japan, both now mostly mitigated:

Though part of the increase came from the reversal of temporary factors that had restrained growth, the expansion was a welcome relief for an economy that looked on the brink of recession just weeks ago.

U.S. gross domestic product expanded at a 2.5 percent annual rate in the third quarter, the Commerce Department said in its first estimate on Thursday. That was a big acceleration from the 1.3 percent pace in the April-June quarter and matched economists’ expectations.

“The probability of a double-dip has diminished quite a bit,” said Sung Won Sohn, an economics professor at California State University in the Channel Islands. He made the comments before the release of the report.

Consumer spending in the last quarter was the strongest since the fourth quarter of 2010, while business investment spending was the fastest in more than a year. Even though consumer spending was stronger, businesses were slow in stocking up their warehouses.

However, Reuters also points out that this might not last long — and that workers won’t see much of a benefit:

The peppier spending and a slower pace of inventory accumulation by businesses will lay a base for a solid fourth quarter, but a slowdown in Europe and the exhaustion of pent-up U.S. demand could leave a weak spot early in 2012.

And the recovery’s pace is still too weak to lower a jobless rate that has been stuck above 9 percent for five straight months.

If one accepts Reuters’ explanation of temporary factors for Q1 and Q2′s near-recessionary performances, then this shows that the economy hasn’t really improved much at all from the second half of 2010.

Blowback