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.Despite the better-than-expected expansion—compared with the second-quarter's 2.5 percent growth and the first quarter's 1.1 percent—key components of the GDP report suggest that the economy is still not on a path to break out of the slow-growth pattern it has been locked in since the Great Recession officially ended 53 months ago.
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 investment, and in PCE.
• Business inventories were up, a reflection of restocking for the holiday spending spree that provides retailers with a hefty chunk of their overall earnings each year. But if purchases aren't strong enough, that could mean less production in the fourth quarter.
• Consumer spending only grew at 1.5 percent, the slowest level since the first quarter of 2010, which could indicate that the annual holiday splurge may be cautious.
• Investment across the economy grew at a healthy 9.5 percent, in large part in the housing sector. But investment in non-residential equipment fell by 3.7 percent, only the second time that has happened since June 2009.
• The inflation-measuring price index for personal consumer expenditures grew 1.9 percent. The core inflation rate, which excludes food and energy prices grew 1.4 percent.
The median estimate of 71 economists surveyed by Bloomberg forecasts fourth-quarter GDP growth at 2 percent, down from the 2.4 percent forecast just a month ago. If that holds true and the third-quarter estimate isn't revised, GDP growth for all of 2013 will clock in at 2 percent, well below the predictions that ran as high as 4 percent last December.
Below the fold, you can read an iconic assessment of GDP as a gauge.
Because of the flaws in the way it measures economic activity, it's important to use the GDP in conjunction with other economic factors when measuring the economy's health. Robert F. Kennedy's assessment in 1968 still resonates:
"Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans."Inadequacies in the GDP gauge have spurred efforts to develop a better measure or 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.