New GDP Data and 2013 Growth

The preliminary estimate of United States third quarter economic growth was released today. The growth number is 2.8 percent, stronger than any of the three quarters prior. The quarter 2 growth rate was 2.5 percent, and the quarter 3 result beat our forecast of 1.3 percent. This was despite slowdowns in the growth of consumption and fixed investment. Consumption expenditure growth subsided from 1.8 percent in quarter 2 to 1.5 percent in quarter 3, and fixed investment expenditures slowed from 6.5 percent in quarter 2 to 4.1 in quarter 3. While fixed investment expenditures on new buildings, both commercial and residential, were double-digit strong, the largest fixed investment sub-category, equipment investment, contracted by 3.7 percent.

The government sector did improve a bit in quarter three, from a decline of 0.4 percent to growth of 0.2 percent. This contributed just 0.04 percent to overall growth in the third quarter. The larger contributers to quarter 3 growth were trade and inventory investment. Trade contributed 0.31 percent to quarter 3 growth compared with 0.07 in quarter 2. Inventory investment contributed 0.83 percent to quarter 3 growth compared with 0.41 in quarter 2. Together, trade and inventory investment contributed 1.14 percent to economic growth in quarter 3, up from 0.48 percent in quarter 2.

With the slowdown in consumption expenditure, the BEA personal savings rate measure rose from 4.5 to 4.7 percent. While current economic growth is slower when consumption falls, future economic growth could benefit if the household sector is underway with balance sheet rebuilding.

With three quarters of data for 2013 the current year-to-date economic growth estimate is 1.5 percent. This is barely greater than half of 2012’s growth rate of 2.8 percent. It is widely expected that the October government shutdown will negatively impact the GDP report for fourth quarter. A simple preliminary estimate of overall 2013 economic growth would be 1.4 percent, half the growth of 2012.

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