U.S. GDP Growth for Third Quarter Revised Down Again

u-s-gdp-growth-revised-down-again-for-third-quarterU.S. economic growth was revised downward again Tuesday when the Commerce Department announced its final numbers for the third quarter. The 2.2% growth rate, down from the previous estimate of 2.8%, was considerably lower than economists had expected; nevertheless, it's the fastest growth the economy has registered in two years.The economic expansion was led by consumer spending, a rebound in residential real estate, a slower reduction in inventories, increased exports, and large gains in government spending triggered by the fiscal stimulus package.

The consensus of economists surveyed by Bloomberg News had been for Q3 GDP (final) to increase 2.7%. Prior to Q3, the economy had contracted for four consecutive quarters, including a 0.7% decline in Q2, a 6.4% plunge in Q1, and a 5.4% contraction in Q4 2008. The federal government revises its quarterly GDP estimates as it receives more information not available earlier. In 2008, the world's largest economy grew a scant 1.1% -- well below capacity. In the 12 months leading to October, U.S. GDP fell 2.6%, in real terms -- with more than 7.6 million jobs lost.

In current dollar terms (not adjusted for inflation), U.S. GDP in Q3 rose 2.6%, or by $90.9 billion, to an annual rate of $14.242 trillion. Corporate profits surged 10.8%, consumer spending rose 2.8%, sales rose 1.5%, real exports of goods and services jumped 17.8%, residential investment surged 18.9%, and government spending increased 8.0%.

Technically, the Q3 gain in GDP does not mean the recession is over. The economy may be recovering, but the National Bureau of Economic Research, the widely-accepted determiner of the economic cycle, has historically used a specific milestone to mark the end of a recession -- two consecutive, positive GDP quarters.


There are three key take-aways from the final Q3 GDP report. First, the 2.2% rate suggests that the U.S. economy will not grow at capacity in 2010. Second, exports -- aided by the weaker dollar -- continue to increase, and will likely continue to add to GDP growth in 2010. Finally, the three-part revision regarding Q3 GDP from 3.5% (initial), to 2.8% (revised), to 2.2% (final) illustrates just how much tabulations on a key indicator can vary as the government receives more data.

Bottom line: The economy is growing, but it's a low growth rate given the stage of the economic cycle (initial stage of a recovery), and it has to grow faster to reduce U.S. unemployment.
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