Q3 GDP Tops Estimates on Huge Spike in Government Spending

Friday brought the first preliminary reading of the gross domestic product for the third quarter of 2012. The Commerce Department reported that GDP rose by 2.0% in the third quarter. With the deflator or the price index, GDP was put at 1.8% in the third quarter.

Bloomberg was calling for estimates of 1.9% on the headline GDP (range 1.0% to 3.9%) and the deflator or the price index was expected to have GDP at 2.0% (range 1.4% to 2.7%). Dow Jones was calling for a consensus reading for growth of 1.8% on the headline GDP reading.

Real personal consumption was up 2% and durable goods helped to push this figure higher. And the conspiracy theorists will be quick to point out that this number was juiced by the government. Why do we say that? Government spending was said to add to growth for the first time in about two years as total government spending was up by 9.6% in the third quarter versus a drop of 0.2% in the second quarter. That will raise some eyebrows.

Today's news may not sound like much of a beat, but when you consider how the earnings season has gone this is somewhat of a relief that growth was at the higher-end of the estimates. The concerns remain ahead over the fiscal cliff, the business climate after the election, and a slowing in business spending.

The flip-side to the relief here is that GDP growth 2.0% remains sub-par and still leaves many sectors feeling as though they are in a recession. Revisions went lower and lower in the second quarter. The Commerce Department previously revised estimated growth at a mere 1.3% versus the first revision of 1.7% and versus the preliminary reading of 1.5%.

Growth of 2% is not going to accommodate any serious employment recovery.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Economy