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In its second estimate of the nation's seasonally adjusted third-quarter economic growth, the Department of Commerce reported Thursday that real (inflation-adjusted) gross domestic product rose at an annualized rate of 3.6 percent. That is substantially up from the 2.8 percent of the first estimate for the quarter. It was the strongest growth rate since the economy hit 3.7 percent in the first quarter of 2012. The final estimate, when better data are available, will be announced next month.

But while the headline number is a big improvement, it conceals an underlying weakness. Of the total growth, 1.7 percent was due to expanded business inventories and only 1.9 percent to the key factor of real final sales. Overall demand is soft.

Macroeconomic Advisers Senior Economist Ben Herzon told the Wall Street Journal that the inventory growth was "unsustainable." Consequently, inventories are likely to build more slowly or fall in the current quarter, which means overall growth will also decline. Macroeconomic Advisers predicts fourth-quarter GDP will grow just 1.4 percent.

Lewis Alexander, chief economist at Nomura Holdings Inc. in New York, had a somewhat more upbeat view: “When you look at the relative optimism you’ve seen in the business surveys, the most logical explanation for the inventory build is a more positive outlook.” Alexander forecasts growth at 3.5 percent. Still, “the big missing ingredient is businesses being sufficiently confident to actually boost hiring and do capital spending.”

According to the Commerce Department:

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.
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.

Originally posted to Daily Kos Economics on Thu Dec 05, 2013 at 09:28 AM PST.

Also republished by Daily Kos.

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Comment Preferences

  •  Aren't expanded inventory generally a good thing? (0+ / 0-)

    it certainly beats lower ones when they don't expect any demand.

    •  As you can see from the two quotations... (9+ / 0-)

      ...I have included, there are differences of opinion on that. If consumers decide not to spend heavily this holiday season, those inventories are going to stay on the shelves and in the storage units and cause a slowdown in future growth. If purchases are high, then the inventories will be cleared and orders for more goods will boost future growth.  

      Don't tell me what you believe, show me what you do and I will tell you what you believe.

      by Meteor Blades on Thu Dec 05, 2013 at 09:52:18 AM PST

      [ Parent ]

    •  How many full time jobs above median income (4+ / 0-)

      did the US add in the same quarter?

      whats the realistic expectation for increased demand?

      Or is this inventory runup really a hope that it sells during the Christmas buying season?

      I think  by itself the expanded inventory is just about meaningless. If we had seen much better than normal job creation just prior, the expanded inventory might be a good thing.

      .................expect us......................... FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Thu Dec 05, 2013 at 09:59:35 AM PST

      [ Parent ]

  •  If there's a 'but' in the title ... (0+ / 0-)

    I know Mr. Blades is on the case.

    Sunny and 70 today but ... it will never last!


    As for business needing 'confidence' as the one joker said, I say: Yeah right.  I guess the mountains of cash they are sitting on have to dwarf Everest before they will quit squeezing the productivity stone into powder, and do some hiring.

  •  Stronger than I predicted, but (1+ / 0-)
    Recommended by:
    Eric Nelson

    thats still 1.825 for the last 4 quarters.

    While nonfarm jobs continue to be non spectacular

    .................expect us......................... FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Thu Dec 05, 2013 at 10:12:46 AM PST

  •  God, I loved Bobby Kennedy's speeches. (3+ / 0-)

    Brought a tear to my eyes.

    A sincere thank you for reminding us the numbers don't measure our souls, our ancestors' courage, and our future potential.

    The numbers serve the rich. They are a moving highlight over humanity, spotlighting one portion and only one.  The older I get, the more I admire Bolivar and other liberators. Because we need liberation from this shocking inequality. There's plenty of money, just in too few hands.

    Sorry for this little outburst, but ... we need people like Bobby Kennedy and his focus on what is important.

    "The law is meant to be my servant and not my master, still less my torturer and my murderer." -- James Baldwin. July 11, 1966.

    by YucatanMan on Thu Dec 05, 2013 at 10:46:09 AM PST

  •  In all four alternate measurements.. (2+ / 0-)
    Recommended by:
    ItsSimpleSimon, tardis10

    ..the focus is people first instead of what is happening to business concerns as the gauge of economic wellness

    Commission on the Measurement of Economic Performance and Social Progress

    Increasing concerns have been raised since a long time about the adequacy of current measures of economic performance, in particular those based on GDP figures. Moreover, there are broader concerns about the relevance of these figures as measures of societal well-being, as well as measures of economic, environmental, and social sustainability.
    Canada's The Genuine Progress Index
    ..And the GDP only reports how much income we produce - but not how that income is distributed. So the GDP can increase even while the poor get poorer and the gap between rich and poor grows.

     No wonder the GDP leaves citizens and policy-makers in confusion. If a rising GDP means that we're better off, why does it so often seem that things are getting worse?

    The Genuine Progress Index, by contrast, is common-sense accounting. It counts beneficial activities as positive, and damaging activities as negative. So it provides far more sophisticated and accurate guidance for citizens and policy-..

     - emphasis added

    Human Development Indicators - Human development

    Gini coefficient

    The Gini coefficient (also known as the Gini index or Gini ratio) (dʒini) is a measure of statistical dispersion intended to represent the income distribution of a nation's residents.
    It's one change we should start immediately imo
    Maybe if we as a country we used these indices instead of GDP, it would be obvious to the people/workers that the tax code structure spends way too much on those that need is the least - those at the very top

    Tax expenditures - spending through the tax code skews toward the top - December 4, 2013 | CBPP  

    A much better way to measure the health of the country - imo - a peoples needs met measuring stick. I like the whole idea of that kind of change

    Thx MB

  •  The fact that there is a surge in inventories (0+ / 0-)

    always means that a slowdown in inventory buildup is around the corner. Somehow this is described as a negative thing above. Inventories are growing because business is confident about their customers' ordering needs. That is a huge positive thing, and not a sign of "weakness".

    Can't we just be happy about one thing? There's such a drumbeat of bad news every day, about everything. This was a good report. I'm celebrating.

  •  "Overall demand is soft." (0+ / 0-)

    What this country needs is a good 5 cent economic Viagra.

    We can discuss this and wonder what to do about that, but in the end, the ONLY thing that matters is voter turnout. Ya CAIN'T go to the dance if you AIN'T bought your ticket! Go team go.

    by franklyn on Thu Dec 05, 2013 at 07:12:47 PM PST

  •  W/ apologies to Frank Zappa, today's GO P'ers (0+ / 0-)

    Are motherfuckers of invention.

    They will twist this good gnus into an origami roast of epic perversions.

    What we call god is merely a living creature with superior technology & understanding. If their fragile egos demand prayer, they lose that superiority.

    by agnostic on Thu Dec 05, 2013 at 07:16:31 PM PST

  •  Science News had a interlinking mapping of emails (0+ / 0-)

    and showed that the crooked parts of Enron's conspiracies to defraud etc were easily spotted by the links they showed...a spiky sparse ball with a dense center of upper level insiders in on the scam, whereas the regular email patterns were very diverse.

    Another chart: A Very small network owns things. Big surprise, but when charted out it shows the very core of the world's richest own most of everything. The smaller holdings of regular investors was very thin amd dispersed and showed the concentrating effects of the interlocking directorates and control and ownerships of the world's financial elites. Very interesting.

    Don't have a link, I'd have to go back to the dr office and steal it :>

    This machine kills Fascists.

    by KenBee on Thu Dec 05, 2013 at 08:11:43 PM PST

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