Q3 GDP final rises to 3.1%

posted at 9:41 am on December 20, 2012 by Ed Morrissey

The BEA released the third and final estimate of US economic growth in the third quarter, and it turned out better than either of the first two reports for Q3.  Growth had been initially estimated at 2.0% in the October advance estimate and rose to 2.7% in November’s interim report, but the final number rose even further to 3.1%:

Real gross domestic product (GDP) increased 3.1 percent in the third quarter of 2012 after increasing 1.3 percent in the second quarter, according to estimates released by the Bureau of Economic Analysis. The third-quarter growth rate was revised up 0.4 percentage point from the second estimate released in November.

Don’t get too excited.  Much of the increase came in inventory expansion and government spending, although consumer spending also picked up a little more than first thought:

Inventory investment was the main driver of the third-quarter acceleration in real economic growth. Nonfarm inventory investment turned up, more than offsetting a larger decline in farm inventory investment that stemmed from the summer drought in the Midwest.

In addition, consumer spending for durable goods picked up, as motor vehicles and parts turned up. Federal national defense spending rebounded, as did state and local government spending.

The real final sales of domestic product for Q3, which strips out inventory expansion, was a bit better than Q2 but not all that much better:

Real final sales of domestic product — GDP less change in private inventories — increased 2.4 percent in the third quarter, compared with an increase of 1.7 percent in the second.

In other words, we did see real improvement in economic growth over Q2, which the initial estimates understated. However, the increase from 1.3% rate in Q2 to a 3.1% rate in Q3 is a bit misleading, especially when considering the big increase in government spending over the previous quarter, as I pointed out a month ago:

Real federal government consumption expenditures and gross investment increased 9.5 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second. National defense increased 12.9 percent, in contrast to a decrease of 0.2 percent. Nondefense increased 3.0 percent, in contrast to a decrease of 0.4 percent. Real state and local government consumption expenditures and gross investment increased 0.3 percent, in contrast to a decrease of 1.0 percent.

Even CNBC seems rather tempered in its assessment, although you have to travel rather far into the article to notice:

While growth in consumer spending, which accounts for about 70 percent of U.S. economic activity, was raised by 0.2 percentage point to a 1.6 percent rate, that mostly reflected higher health care costs.

Business inventories were trimmed to $60.3 billion from $61.3 billion. Restocking by businesses contributed 0.73 percentage point to GDP growth.

Given the sluggish spending pace, some of the inventory accumulation might have been unplanned, suggesting businesses will need to liquidate stocks this quarter because of weak demand.

Meanwhile, weekly jobless claims increased, but still remained in the same range as we’ve seen for the last 20 months:

A separate report showed weekly jobless claims rose slightly more than expected. Weekly jobless claims rose to 361,000 in the latest week. Claims has been expected to rise to 357,000, from 343,000 the prior week.

That could change, too, if this report on the Christmas retail season turns out to be accurate:

To be sure, stores have been offering discounts throughout the season, but they resisted the blockbuster deals that ate away at profits last year. In fact, promotions and discounting were down 5 percent through Dec. 10 compared with last year, according to BMO Capital Markets, which tracks promotions at about two-thirds of mall stores. But sales have been slow, and as of Monday, the level of discounting is now even with a year ago.

Now, stores will have to rely even more on the final days before Christmas to make up the sales shortfall. ShopperTrak, which counts foot traffic and its own proprietary sales numbers from 40,000 retail outlets across the country, said Wednesday that the number of shoppers in stores for the week that ended on Saturday fell 4.4 percent from the year-ago period, while sales declined 4.3 percent. As a result, the company said it would slash its sales forecast to a 2.5 percent increase to $257.7 billion, down from the 3.3 percent growth it had initially predicted.

And online sales, which have been seen as a beacon during the season, have been below expectations, too. Online sales are up 13 percent to $35 billion from Nov. 1 through Dec. 16, according to comScore, an online research. That pace is below the forecast of 17 percent for the season.

“It feels like the steam is out of the holiday since Black Friday,” said Bill Martin, ShopperTrak’s co-founder.

Rising inventories and falling sales do not make for a bright economic future.

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Nothing Obooba would do would help, everything he’d do would/has hurt.

Akzed on December 20, 2012 at 9:47 AM

While growth in consumer spending, which accounts for about 70 percent of U.S. economic activity, was raised by 0.2 percentage point to a 1.6 percent rate, that mostly reflected higher health care costs.

Terrific. So basically GDP got an uptick thanks to more government spending and higher health care costs. The only problem there is when people spend more on health care, they don’t spend that money elsewhere. And when the government continues to spend money we don’t have, that money comes out of the private sector(if not now, then in the very near future).

Doughboy on December 20, 2012 at 9:47 AM

lmfao! the ministry of plenty has increased my chocolate ration from 5 grams to 3 grams.

I’m so happy that zirp is devaluing my dollar at aryton senna rates.

tom daschle concerned on December 20, 2012 at 9:47 AM

Happy days are here again! Thanks, President Obama. /

changer1701 on December 20, 2012 at 9:49 AM

I know of one type of store which has been doing record business lately.

How great would it be that the dems would need to highlight gun sales as “proof” of a strengthening economy.

Bishop on December 20, 2012 at 9:50 AM

In related news, a half gallon of ice cream, is now actually a third gallon with the same price point.

Bmore on December 20, 2012 at 9:51 AM

2% to 3.1%.

How much faith and credit can you give to an agency that gets an economic report wrong by over 50%?

None. These numbers are just fantasy provided to the MSM to meet the needs of the regime.

BobMbx on December 20, 2012 at 9:55 AM

Rising inventories and falling sales do not make for a bright economic future.

pretty much sums up the forecast for the next 4 years

RedInMD on December 20, 2012 at 9:57 AM

I’m so happy. And of course it’ll be getting even better with another dose of Stimulus. /s

Drained Brain on December 20, 2012 at 9:59 AM

Now, stores will have to rely even more on the final days before Christmas to make up the sales shortfall. ShopperTrak, which counts foot traffic and its own proprietary sales numbers from 40,000 retail outlets across the country, said Wednesday that the number of shoppers in stores for the week that ended on Saturday fell 4.4 percent from the year-ago period, while sales declined 4.3 percent. As a result, the company said it would slash its sales forecast to a 2.5 percent increase to $257.7 billion, down from the 3.3 percent growth it had initially predicted.

This sounds like GM in 2005.

“Rebates and discounts are killing our sales and resale value! NO MORE DISCOUNTS!”

::sales decline drastically::

“10K OFF THE NEW MALIBU! BUY A SUBURBAN AND GET A FREE CRUZE!!!”

Gatsu on December 20, 2012 at 9:59 AM

Before long we’ll be hearing of farm yields and industrial output 300% higher per year, like the USSR circa 1950.

Bat Chain Puller on December 20, 2012 at 9:59 AM

This sounds like GM in 2005.

“Rebates and discounts are killing our sales and resale value! NO MORE DISCOUNTS!”

::sales decline drastically::

“10K OFF THE NEW MALIBU! BUY A SUBURBAN AND GET A FREE CRUZE!!!”

Gatsu on December 20, 2012 at 9:59 AM

I noticed some really good prices at department stores and e-tailers right before and during Black Friday. Then suddenly the prices on most items got jacked back up to previous levels. Unless they were planning on doing all of their holiday sales during Thanksgiving week, that may not have been the best move.

Doughboy on December 20, 2012 at 10:04 AM

Before long we’ll be hearing of farm yields and industrial output 300% higher per year, like the USSR circa 1950.

Bat Chain Puller on December 20, 2012 at 9:59 AM

it is here now. it is happening now. the media machine has allied itself with the DNC. they are “the party.”

tom daschle concerned on December 20, 2012 at 10:10 AM

Lib trolls: “Ed, You never gave caveats when there were good economic reports in the Boooooooooshhhh years!!!!11!”

KS Rex on December 20, 2012 at 10:10 AM

Spin spin spin
-lsm

cmsinaz on December 20, 2012 at 10:16 AM

Doughboy on December 20, 2012 at 10:04 AM

As did I, it looks like they are trying to work the “scarcity” angle to boost sales early and then put the rest out at normal prices and hope people just bite the bullet and buy the item at full price.

Think of it like a strange combo of buyers remorse and impulse buy. A “I’ve been kicking myself for not getting it when I saw it, but here it is so buy it now!” mentality.

This will result in a large amount of unsold inventory and “after Christmas/new years/whatever” sales.

Then, at the end of the next quarter, you will see one major retailer go bankrupt, Sears/JCP/Dicks/someone.

Bet.

Gatsu on December 20, 2012 at 10:16 AM

Don’t forget Bernanke’s QE4ever lifting housing prices

Robert_Paulson on December 20, 2012 at 10:28 AM

Just wait until we go over the fiscal cliff and the US gets another downgrade, a recession, and higher taxes for all.

There is no reason to be overly joyous or optimistic this holiday season.

Happy Nomad on December 20, 2012 at 10:30 AM

How great would it be that the dems would need to highlight gun sales as “proof” of a strengthening economy.

Bishop on December 20, 2012 at 9:50 AM

You’re downright evil! ;0

Happy Nomad on December 20, 2012 at 10:32 AM

I know of one type of store which has been doing record business lately.

How great would it be that the dems would need to highlight gun sales as “proof” of a strengthening economy.

Bishop on December 20, 2012 at 9:50 AM

Bah, they would just lie about where that sudden “uplift” came from.

Guns would suddenly become “other retail” or “durable goods” or “icky machines”…

Gatsu on December 20, 2012 at 10:44 AM

$85 billion a month of printing greenbacks by Teh Bernake should fix everything right up to a 10%+ growth rate (non/fake inflation adjusted).

jukin3 on December 20, 2012 at 10:45 AM

And that’s why GOP wants to break the economy, again.

lester on December 20, 2012 at 11:03 AM

End of year budget burning for companies and govt. Holiday season spending. No shocker. Meh.

Philly on December 20, 2012 at 11:06 AM

And that’s why GOP wants to break the economy, again.

lester on December 20, 2012 at 11:03 AM

WHAT THE…????

NJ Red on December 20, 2012 at 11:13 AM

And that’s why GOP wants to break the economy, again.

lester on December 20, 2012 at 11:03 AM

Little hard to “break” something that was never fixed.

Gatsu on December 20, 2012 at 11:35 AM

We should stop counting government deficit spending as part of GDP.

besser tot als rot on December 20, 2012 at 11:56 AM

Nothing Obooba would do would help, everything he’d do would/has hurt.

Akzed on December 20, 2012 at 9:47 AM

President Flap-Ears had nothing to do with this minor ‘modulation’. According to headlines from Bill Clinton in September (heh, Q3!): “No President Could Have ‘Magically’ Fixed It In One Term”

socalcon on December 20, 2012 at 12:05 PM

And that’s why GOP wants to break the economy, again.

lester on December 20, 2012 at 11:03 AM

Lester, your ‘Favorites’ get hacked and changed from Huffpo?

socalcon on December 20, 2012 at 12:07 PM

And that’s why GOP wants to break the economy, again.

lester on December 20, 2012 at 11:03 AM

Exhibit B for the pressing need to focus on mental health.

Right on December 20, 2012 at 2:11 PM

Q3 GDP final rises to 3.1%

Still over 5% short of the amount we borrowed and spent. How can anyone call that “growth”??

ThePrimordialOrderedPair on December 20, 2012 at 2:26 PM

The world’s largest economy is growing by 3%. Amidst global economic turmoil, the US is in an enviable position among developed nations. So much for Obama ruthlessly destroying the United States.

ernesto on December 20, 2012 at 2:55 PM

Q3 GDP is 3.1%?

Yeah ok. THE BEA is full of sheep dip. Are they still using fake deflators?

ernesto on December 20, 2012 at 2:55 PM

Only one problem chump. The stat is a lie. If it was real, I’d be pleased, but it isn’t real.

dogsoldier on December 20, 2012 at 4:02 PM

Like pretty much everything with Obama, it looks good on the surface, but with a tiny bit of digging its not good. Unfortunately, the uneducated voter will just see it as strong growth, and obamas approval will continue to surge.

Jack_Burton on December 20, 2012 at 4:53 PM

.what’s a dollar worth?

KOOLAID2 on December 20, 2012 at 10:52 PM