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The Bureau of Economic Analysis reported Friday that growth in the nation's seasonally and inflation-adjusted gross domestic product increased at an annual rate of 2 percent in the third quarter ending Sept. 20. It marks the 13th consecutive quarter of GDP growth. A consensus of analysts surveyed ahead of time by Dow Jones Newswires had expected 1.8 percent growth. In the second quarter, growth was 1.3 percent.

Consumer spending drove the rise. Real personal-consumption expenditures, which rose only 1.5 percent in the second quarter, were up by 2.0 percent in the third. Durable goods purchases, those meant to last three years or longer, rose by 8.5 percent, contrasted with in a second-quarter decrease of 0.2 percent. Nondurable goods purchases increased 2.4 percent, compared with an increase of 0.6 percent. Services increased 0.8 percent, compared with an increase of 2.1 percent.

Behind the increased purchases, however, was a reduced level of increase in personal disposable income as well as reduced savings.

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

The acceleration in real GDP in the third quarter primarily reflected an upturn in federal government spending, a downturn in imports, an acceleration in PCE, a smaller decrease in private inventory investment, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by downturns in exports and in nonresidential fixed investment.

As always, the BEA warned that the GDP report is an "advance" number that will be revised twice in the next two months as better data become available.

Gross domestic product is the most complete measure of all goods and services. But its flaws have long been acknowledged. As Robert F. Kennedy said in 1968: GDP "measures everything, in short, except that which makes life worthwhile." GDP leaves out things such as income inequality, the intensity of poverty, economic security, crime costs, the economic value of civic and voluntary work, the economic value of unpaid housework and child care, educational attainment and life expectancy. It’s a measure that assigns zero value to leisure time, to the depletion of mineral and other natural resources, to the benefits of saving, to trade imbalances, to deficits and debt.

These flaws have generated efforts to develop a better gauge or at least supplements to it. These include France's Commission on the Measurement of Economic Performance and Social Progress, Canada's Genuine Progress Index (a version of which has recently been tried out in Maryland), the Human Development Index and the  Gini coefficient.

Originally posted to Daily Kos Economics on Fri Oct 26, 2012 at 06:19 AM PDT.

Also republished by Daily Kos.

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