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