Second look at third-quarter GDP: +3.6%

Last month, the advance estimate for the third quarter GDP was a 2.8% annualized increase. Today, the second of three revisions was released, and the topline news was, in a word, stunning:

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 3.6 percent in the third quarter of 2013 (that is, from the second quarter to the third quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.5 percent.

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 2.8 percent (see “Revisions” on page 3). With this second estimate for the third quarter, the increase in private inventory investment was larger than previously estimated.

The increase in real GDP in the third quarter primarily reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, nonresidential fixed investment, residential 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 an acceleration in private inventory investment, a deceleration in imports, and an acceleration in state and local government spending that were partly offset by decelerations in exports, in PCE, and in nonresidential fixed investment.

Looking over the details, it wasn’t quite as impressive. The acceleration in real GDP growth was entirely due to a massive increase in inventories – their contribution to the GDP growth went from 0.83 percentage points in the first look to 1.68 percentage points. As Tom Blumer said, “The increase is nice, if the inventories which were created get sold without deep discounting. The prospects for that don’t look good, based on early Christmas shopping season results.”

Reuters was similarly unimpressed:

The U.S. economy grew faster than initially estimated in the third quarter as businesses aggressively accumulated stock, but underlying domestic demand remained sluggish.

Gross domestic product grew at a 3.6 percent annual rate instead of the 2.8 percent pace reported earlier, the Commerce Department said on Thursday. Economists polled by Reuters had expected output would be revised up to only a 3.0 percent rate.

The third-quarter pace is the fastest since the first quarter of 2012 and marked an acceleration from the April-June period’s 2.5 percent rate.

Businesses accumulated $116.5 billion worth of inventories, the largest increase since the first quarter of 1998. That compared to prior estimates of only $86 billion.

Inventories accounted for a massive 1.68 percentage points of the advance made in the July-September quarter, the largest contribution since the fourth quarter of 2011.

The contribution from inventories had previously been estimated at 0.8 percentage point. Stripping out inventories, the economy grew at a 1.9 percent rate rather than the 2.0 percent pace estimated last month.

Meanwhile, the Thanksgiving holiday had a hand in dropping the initial jobless claims the week ending 11/30 down to a seasonally-adjusted 298,000. Reuters broke out the “unexpectedly” word for that bit of news as the economists they polled expected that number to come in at 325,000.

One group that didn’t see either item as unqualified good news is the investor class. CNBC explains in a 8:36 am Eastern item:

U.S. stock index futures retained tepid gains on Thursday after economic reports had the economy growing more than expected in the third quarter, with investors nervous that a strong jobs report on Friday could provoke a 2013 start to the Federal Reserve’s tapering off of its stimulus program.

As I type this just after 9 am Eastern, those gains turned negative outside the NASDAQ composite index.

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Jazz Shaw 1:01 PM on May 27, 2023