As measured by seasonally adjusted annualized growth in gross domestic product, the 4.1 percent
estimated by the Bureau of Economic Analysis for the third quarter of 2013 was the best outcome the U.S. economy has generated since the fourth quarter of 2011. It was the second best since the recovery from the Great Recession officially began in the summer of 2009. Only four times in the past dozen years has higher growth been reported.
This was the BEA's third and final report on third-quarter growth. In October, in its first report for the third quarter, the BEA had reported GDP at 2.8 percent; in the second report, it upped that estimate to 3.6 percent. In 2012, GDP grew by 2.8 percent; in 2011 by 1.8 percent. The leading fallout from this tepid expansion of the economy has been continuing high unemployment.
The increase in real GDP in the third quarter primarily reflected positive contributions from private inventory investment, PCE, nonresidential fixed investment, exports, 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. [...]
Real personal consumption expenditures increased 2.0 percent in the third quarter, compared with an increase of 1.8 percent in the second. Durable goods increased 7.9 percent, compared with an increase of 6.2 percent. Nondurable goods increased 2.9 percent, compared with an increase of 1.6 percent. Services increased 0.7 percent, compared with an increase of 1.2 percent.
The greater than expected growth in the third quarter has spurred some analysts to boost their projections for fourth-quarter annualized growth in GDP, which most forecasters have been putting in the 1-2 percent range. For example, Macroeconomic Advisors has raised its fourth-quarter forecast to 2.2 percent. But expectations have outrun reality several times when good economic news has popped up briefly during the aftermath of the deepest, longest lasting recession since the 1930s. As before,
this time supposedly will be different, as Josh Mitchell
notes:
"The U.S. economy has flattered to deceive several times in recent years, looking like it was set for a period of faster growth only to fall flat," Joseph Lake, U.S. analyst for the Economist Intelligence Unit, said in a note to clients. "This time is different, and we expect the U.S. to embark on a sustained economic upswing in the coming quarters."
There are some good reasons to take such an optimistic view. While job growth has still not been strong enough to reduce the unemployment rate to where it was when the Great Recession began, it has improved somewhat better in 2013 than it did last year. Then, too, leading economic indicators, including housing sales, are showing strength in areas where they previously did not. That has, no doubt, been one reason that private residential investment has grown.
Despite the generally upbeat GDP report, which sent stocks into record territory again Friday, there are caveats. A third of the growth comes from business inventories. If retail sales do well over the holidays, then those inventories will dwindle and have to be replaced, meaning more growth in 2014, and presumably more hiring. But if sales don't clear the shelves, the inventories will be a drag on future growth. Likewise, personal consumption expenditures were higher than previously reported in the third quarter. But PCE is not being matched by increases in wages. In other words, people are spending from savings. That is unsustainable over the long run.
Below the fold, you'll find the iconic statement from Robert F. Kennedy that I include for big-picture perspective with each GDP report.
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.
