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

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.