The advance look at third-quarter GDP — a 2.8% increase

posted at 10:41 am on November 7, 2013 by Steve Eggleston

A bit over a month ago, when the 2nd-quarter real GDP annualized increase of 2.5% was finalized, there were warnings that that wouldn’t continue into the heat of the summer. Indeed, the experts expected that the third-quarter GDP growth would slip to an annualized 2.0%.

I’m pretty sure this will warrant an “unexpected” sighting over at Reuters and the Associated Press:

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 2.8 percent in the third quarter of 2013 (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 2.5 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 and “Comparisons of Revisions to GDP” on page 4). The “second” estimate for the third quarter, based on more complete data, will be released on December 5, 2013.

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

The acceleration in real GDP growth in the third quarter primarily reflected a deceleration in imports and accelerations in private inventory investment and in state and local government spending that were partly offset by decelerations in exports, in nonresidential fixed nvestment, and in PCE.

Looking over Table 2, the contributions to percent change in real GDP, the news is a bit less impressive. Personal consumption expenditures, which provided 1.24 points to the 2nd quarter GDP growth, provided only 1.04 points to the 3rd quarter GDP growth. Fixed business investments’ contribution dropped from 0.96 points in the 2nd quarter to 0.63 points in the third quarter, while change in inventories’ contribution rose from 0.41 points in the 2nd quarter to 0.83 points in the third quarter. While net exports of goods made a positive contribution for the first time since the 4th quarter of 2012, it was because imports collapsed faster than exports.

The implicit price deflator, the comprehensive look at inflation from the perspective of GDP, was 1.8%, which means nominal (current-dollar) GDP actually improved more than in other recent quarters. That said, the implicit price deflator is still a bit below the annualized 2.0% increase in the Consumer Price Index and the annualized 2.4% increase in the Producer Price Index during the third quarter.

Meanwhile, after close to two months of unreliable data caused first by computer problems in California and some other states, then the artificial influx of federal employees during the 17% Shutdown, the initial jobless claims finally seem to be a reliable indicator. Unfortunately, this past week’s 336,000 initial jobless claims marks the second consecutive “untainted” week initial jobless claims were significantly above the late-summer 325,000 average, which didn’t really move the jobs numbers.

That does not bode well for the jobs report due out tomorrow. Neither does ADP’s survey finding only 130,000 net new private-sector jobs in October. On the positive side of the coin, Gallup’s measure of unemployment fell from a seasonally-unadjusted 8.0% in the middle of September to 7.5% in the middle of October, and the ISM indexes of both the manufacturing and service sectors posted unexpected increases in October.

Update - The “unexpected” word didn’t quite enter the all-rosy “surprised” AP or the more-somber Reuters reports. The difference in tone is stunning.

The AP’s take:

Consumers stepped up spending on goods. But overall spending weakened from the second quarter because service spending was essentially flat, in part because of a cooler summer that lowered utility spending.

The third-quarter outcome was nearly a full percentage point stronger than most economists had predicted. Analysts expect the shutdown will slow growth in the October-December quarter.

Reuters’ take:

The U.S. economy grew faster than expected in the third quarter as businesses restocked shelves, but a slowdown in consumer and business spending pointed to an underlying weakness.

Gross domestic product expanded at a 2.8 percent annual rate, the quickest pace since the third quarter of 2012, the Commerce Department said on Thursday. It was an acceleration from a 2.5 percent clip in the second quarter and beat economists’ expectations for a 2.0 percent rate.

Details of the first estimate of third-quarter GDP were generally weak, with inventories contributing 0.83 percentage point to GDP growth. Excluding inventories, the economy grew at a 2.0 percent rate after expanding at a 2.1 percent pace.

Consumer and business spending growth slowed sharply, lending the report a weak tone and validating the Fed’s decision to stick to its $85 billion monthly bond-buying program.


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Damn Bush… and the sequester… and GOP obstructionism… and especially Ted Cruz.

mankai on November 7, 2013 at 10:47 AM

So we are losing more jobs than what we gain yet the UI number goes down.

watertown on November 7, 2013 at 10:50 AM

Recession in America…
Failure in the White House…

albill on November 7, 2013 at 10:52 AM

Stores restocking shelves and people stepping up their buying just a bit, why it’s almost as if a major gifting holiday is right around the corner.

My local Menards had Christmas displays out even before their Halloween stuff, you can bet your soiled socks that every retailer in America is desperately hoping Xmas will keep them solvent.

Bishop on November 7, 2013 at 10:53 AM

Consumer and business spending growth slowed sharply, lending the report a weak tone

Just wait until the Obamapremiums kick in.

Happy Nomad on November 7, 2013 at 10:54 AM

Let’s see:

-Unemployment up
-Government spending up (state level, fed numbers are just too screwy)
-Inventories up

Yep, things look pretty good here. Less people working, more government and unsold inventory.

WitchDoctor on November 7, 2013 at 10:56 AM

So we are losing more jobs than what we gain yet the UI number goes down.

watertown on November 7, 2013 at 10:50 AM

That is not correct. We are gaining more jobs than we are losing, and have been for a long time. I think you’re misinterpreting what the UI claims and jobs added numbers mean.

tneloms on November 7, 2013 at 10:56 AM

My local Menards had Christmas displays out even before their Halloween stuff, you can bet your soiled socks that every retailer in America is desperately hoping Xmas will keep them solvent.

Bishop on November 7, 2013 at 10:53 AM

And IMO, they will be disappointed. Who feels like spending big on the holidays with Obamacare looming and all the other crap going on these days?

Happy Nomad on November 7, 2013 at 10:57 AM

That is not correct. We are gaining more jobs than we are losing, and have been for a long time. I think you’re misinterpreting what the UI claims and jobs added numbers mean.

tneloms on November 7, 2013 at 10:56 AM

Jobs are not widgets. Any jobs “gained” are part-time which really isn’t a replacement for a good full-time job- now is it?

Happy Nomad on November 7, 2013 at 11:00 AM

So we are losing more jobs than what we gain yet the UI number goes down.

watertown on November 7, 2013 at 10:50 AM

Not quite – the weekly initial jobless claims only measures a part of the job-loser portion of the “churn” between job gainers and job losers. There is no equivalent measure of job-gainers, thanfully because if there were, it would mean we’re all government drones.

The monthly jobs numbers measures the net between the two, and the related JOLTS survey (a month behind the initial jobs report) measures both job-finders and job-losers.

Steve Eggleston on November 7, 2013 at 11:00 AM

The USA Today report was even more exuberant than the AP….

The economy grew at a 2.8% annual rate in the third quarter, an unexpectedly strong performance that defied predictions that slowing growth in new home sales over the summer and the threat of a government shutdown were cutting into growth.

The performance beat the average estimate of 2% annualized growth, as predicted in a survey of economists conducted by Bloomberg News. It represents an acceleration from 2.5% growth in the second quarter.

The story sobers up a few paragraphs deeper….

The details of the numbers are weaker than the headline figure, said David Berson, chief economist at Nationwide Insurance. About a quarter of the gain came from an unanticipated buildup in inventories, he said. Growth in consumer spending was slower than in the second quarter, and investment in housing decelerated as interest rates rose, he said. Factoring out the inventory gains, the economy grew at a 2% rate in the quarter, pretty much as forecast, he said.

“If you look closely, what all this says is that we’re probably set up for a weaker fourth-quarter number,” Berson said. “We’re at 1.5%”

What happened to the days when 4.5% GDP growth or more were considered ‘strong’? And 2.5% was considered a weak average?

And what was the promised unemployment and GDP growth rates that were ‘promised’ if we passed 2009′s “one-time” stimulus package that just happened to be included in each of the subsequent CR’s as part of the new normal? IIRC, it was supposed to be around a 5% unemployment rate and no less than 4.5% GDP growth.

Athos on November 7, 2013 at 11:03 AM

My local Menards had Christmas displays out even before their Halloween stuff, you can bet your soiled socks that every retailer in America is desperately hoping Xmas will keep them solvent.

Bishop on November 7, 2013 at 10:53 AM

And IMO, they will be disappointed. Who feels like spending big on the holidays with Obamacare looming and all the other crap going on these days?

Happy Nomad on November 7, 2013 at 10:57 AM

I’m not seeing anything to the contrary.

Steve Eggleston on November 7, 2013 at 11:03 AM

Well, I’m sorry I even think this but given the politicized state of our government it would not surprise me if these numbers have not been massaged upwards so that when the 4Q numbers come out they will show a huge decline they will try and blame on the Evil Shutdown.

Mr. Bingley on November 7, 2013 at 11:05 AM

Just wait until black Friday 2013 turns all this around guys.

Gatsu on November 7, 2013 at 11:07 AM

Athos on November 7, 2013 at 11:03 AM

Nice catch of the USA Today story. It’s almost as though two different writers were on it.

The good old days of solid GDP growth disappeared with the rise of the ObamiNation. This is the low-interest-rate equivalent of the late 1970s’ stagflation.

I’m sure Jim Pethokoukis will resurrect that old chart of 5% unemloyment by now (with or without Porkulus) tomorrow when the jobs report comes out.

Steve Eggleston on November 7, 2013 at 11:09 AM

Just wait until black Friday 2013 turns all this around guys.

Gatsu on November 7, 2013 at 11:07 AM

Black Friday is a racist term. /

Thanksgiving is three weeks off and there are already stories about retailers starting black Friday on Thanksgiving. I predict that the “sales” will start even before that.

Happy Nomad on November 7, 2013 at 11:12 AM

Just keep in mind that if a Republican were in office, this news would be treated as if we could expect soup lines any time now. But with Obama in office…… Happy Days are Here Again!

Happy Nomad on November 7, 2013 at 11:14 AM

Just keep in mind that if a Republican were in office, this news would be treated as if we could expect soup lines any time now. But with Obama in office…… Happy Days are Here Again!

Happy Nomad on November 7, 2013 at 11:14 AM

Point of order – the Organs would have found soup lines to include in their stories.

Steve Eggleston on November 7, 2013 at 11:16 AM

2.8, regardless of the details, is a good solid number if you have an economy that is chugging along. It’s not a good growth number, but it’s not a stall speed number either.

Honestly, if I didn’t have any other numbers at hand and you told me that 5 years out from the latest confirmed recession, the economy would post a +2.8 GDP, I’d be thrilled.

However, we’re not looking at that number in isolation. We’re not in an economy that’s chugging along. We’re supposed to be in a recovery. 2.8 is very weak for a recovery. And a recovery that’s still in progress 5 years after the recession ended is problematic in itself.

If people are really thinking 1.5 for Q4, that’s a big problem. That is stall speed, and stall speed at the end of the year doesn’t bode well for the new year.

Chris of Rights on November 7, 2013 at 11:20 AM

Just wait until black Friday 2013 turns all this around guys.

Gatsu on November 7, 2013 at 11:07 AM

African American Friday, you dumb homophobe, and it just happens to be the most clean and articulate day of the year too.

Jeebus, I hate you KKK’ers.

Bishop on November 7, 2013 at 11:21 AM

2.8 – which will be downgraded to 2.1 in a couple weeks

jake-the-goose on November 7, 2013 at 11:21 AM

I’m willing to be a lot of money that these numbers will “unexpectedly” be revised downward (with no mention by the LSM). I don’t trust anything out of this administration of liars.

RoadRunner on November 7, 2013 at 11:22 AM

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

.
I’m guessing “downward”… but “forward.”

ExpressoBold on November 7, 2013 at 11:24 AM

2.8 – which will be downgraded to 2.1 in a couple weeks

jake-the-goose on November 7, 2013 at 11:21 AM

Yeah, it’s not like this Administration hasn’t used stealth edits befo…. Look, Squirrel!

Athos on November 7, 2013 at 11:25 AM

2.8 – which will be downgraded to 2.1 in a couple weeks

jake-the-goose on November 7, 2013 at 11:21 AM

The second look, which is where most of the revisions happens, is due out on December 5, and the final look is tentatively still scheduled for December 20.

I don’t doubt that the revisions will be downward – they are based more on September data, and that was not a good month.

Steve Eggleston on November 7, 2013 at 11:27 AM

I’m willing to be a lot of money that these numbers will “unexpectedly” be revised downward (with no mention by the LSM). I don’t trust anything out of this administration of liars.

RoadRunner on November 7, 2013 at 11:22 AM

I guarantee Ed will be all over the upcoming revisions – he’ll be back from vacation long before they hit.

Steve Eggleston on November 7, 2013 at 11:28 AM

Faux just now reporting what I’ve typed here for weeks – most workers on the obama’care’ site are legal and illegal visa holders, no legal ‘mericans, hardly.

Work harder. The world needs your support…and to hell with the legal ‘merican workers. obama hates you.

Cheers SE – doing good work! Above all, sharing good cheer :)

Schadenfreude on November 7, 2013 at 11:28 AM

Just wait until black Friday 2013 turns all this around guys. – Gatsu on November 7, 2013 at 11:07 AM

Watch out, you used the term BLACK Friday. You might be skinned like the Redskins football team.

SC.Charlie on November 7, 2013 at 11:39 AM

You’d expect some of the trillios o monopoly dollars they printed to come back in taxes. Unless it all goes to Democrats.

Buddahpundit on November 7, 2013 at 11:48 AM

Some of you may recall the Zero Regime changed the calculation for GDP a little while ago and then recalculated all the numbers all the way back to the depression.

The headline number is FAKE. Check out the consumer metrics institute website where the real number and the math to back it up will be posted.

Regarding the jobs situation, creation is not equaling what we are losing AND 72% of the created jobs are both part time and temporary.

The average stay on unemployment is now over EIGHT MONTHS.

dogsoldier on November 7, 2013 at 12:26 PM

2.8% growth is not a bad number. It’s mediocre. GDP estimates can be revised by half-percent or more. Wait and see what the final number is.

Ted Torgerson on November 7, 2013 at 12:58 PM

Can someone help me understand these jobs created number? Lets say I quit my job, and my neighbor quits his job. The next day I go get hired to fill his job, and he in turn takes my old job. Are those considered two new jobs created?

Salukidog on November 7, 2013 at 12:59 PM

With interest rates at virtual zero and a slack labor force wating to be put to work that growth figure should be around 8%.

Meremortal on November 7, 2013 at 1:02 PM

Can someone help me understand these jobs created number? Lets say I quit my job, and my neighbor quits his job. The next day I go get hired to fill his job, and he in turn takes my old job. Are those considered two new jobs created?

Salukidog on November 7, 2013 at 12:59 PM

That’s a net of zero.

Steve Eggleston on November 7, 2013 at 1:57 PM

Can someone help me understand these jobs created number? Lets say I quit my job, and my neighbor quits his job. The next day I go get hired to fill his job, and he in turn takes my old job. Are those considered two new jobs created?

Salukidog on November 7, 2013 at 12:59 PM

Unless, of course, you use Porkulus math, in which case it is 2 jobs “saved-or-created”.

Steve Eggleston on November 7, 2013 at 1:58 PM

Steve Eggleston on November 7, 2013 at 1:58 PM

Same math that generated the 2.8 GDP.

dogsoldier on November 7, 2013 at 2:00 PM

Cheers SE – doing good work! Above all, sharing good cheer :)

Schadenfreude on November 7, 2013 at 11:28 AM

Here Here. Some great material, and I know we all enjoy the interaction. Well done Steve.

JusDreamin on November 7, 2013 at 2:04 PM

With interest rates at virtual zero and a slack labor force wating to be put to work that growth figure should be around 8%.

Meremortal on November 7, 2013 at 1:02 PM

There’s a barrier to putting that slack labor force back to work, it’s called Obamacare.

slickwillie2001 on November 7, 2013 at 3:38 PM

There’s a barrier to putting that slack labor force back to work, it’s called Obamacare.

slickwillie2001 on November 7, 2013 at 3:38 PM

That’s only one of the barriers.

Steve Eggleston on November 7, 2013 at 10:07 PM