On the Change in Q3 GDP

Posted on Monday, December 28, 2009

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I hope you all are having a nice holiday season thus far. I am back in civilization, though I plan to keep posting light the remainder of the week.

I did want to touch upon the large downward revision to GDP prior to this becoming "last years news" in a week's time. The AFP reported:

The US economy limped forward at a 2.2 percent pace in the third quarter, according to government figures Tuesday that suggest a tepid recovery from recession.
The downward revision from last month's estimate of 2.8 percent growth in gross domestic product (GDP) came primarily from a weaker contribution from business investment, as well as slightly slower consumer spending growth.
The Commerce Department report confirms that the world's biggest economy swung back to growth in the July-September period after four quarters of contraction in the worst recession in decades, but with little forward momentum.
Scott Brown, chief economist at Raymond James & Associates, said the report was "a bit disappointing" and suggests "that underlying domestic demand is pretty soft."
Brown said he expects a jump in growth to at least 4.0 percent in the current fourth quarter, but says much of that will come from restocking of business inventories drawn down in the recession.

Below is a chart detailing what was revised down from the initial 3.5% release to the "final" (i.e. it can still be revised) 2.2% figure. It turns out... everything (consumption, investment, government spending, net exports).

Overall contribution remained centered around the rebound of the consumer in the face of mounting debt / high unemployment, but subsidized deals (i.e. cash for clunkers) winning the battle. Growth in investment and government spending outpaced the negative impact of the rebound in imports (what... you thought we were consuming only American made items????).