Economy Grows At Good, But Far From Great, Rate In 3rd Quarter

A good initial GDP report for the 3rd Quarter, but hardly something to write home about.

Economy Heartbeat

The U.S. economy grew at a stronger than expected rate in the 3rd quarter, although the rate of growth still remains stubbornly below where it needs to be to get the economy out of the funk that its been in since the end of the Great Recession:

The American economy grew at an annual rate of 2.8 percent in the third quarter, significantly better than economists had expected and the fastest pace this year.

The Commerce Department report had originally been scheduled to come out on Oct. 30, but was delayed by the government shutdown last month. Economists surveyed by Bloomberg News had estimated an annual growth rate of 2 percent in the third quarter, but that forecast had been drifting lower recently.

At 2.8 percent, the government’s first estimate of gross domestic product over the course of July, August and September followed growth rates of 1.1 percent in the first quarter of the year and 2.5 percent in the second quarter.

The G.D.P. report showed that imports dropped in the third quarter, and the improved trade balance along with rising inventories lifted growth overall.

Many experts have blamed the economy’s lukewarm performance recently on what they term the “fiscal drag” coming from Washington, mainly across-the-board spending cuts imposed by Congress as well as tax increases that went into effect at the beginning of the year.

Indeed, that headwind is expected to persist into the current quarter, and it could be exacerbated by the partial shutdown, which began on Oct. 1 and lasted 16 days. Economists estimate output will increase at an annual rate of 2.4 percent in October, November and December, but the full impact of the shutdown remains a wild card.

Since the recovery began in 2009, quarterly measures of annual economic growth have averaged about 2.25 percent, well below the typical recovery rate. Many economists expect the fiscal fallout to ease in 2014, but forecasts of faster growth just around the corner have proved premature for years.

“The fiscal drag will dissipate but we’re far from takeoff,” said Guy Berger, United States economist for RBS Securities, in an interview before the G.D.P. release Thursday. “Large parts of the U.S. economy are advancing but at a pace people would consider to be disappointing.”

CNBC puts it this way:

The U.S. economy grew faster than expected in the third quarter as businesses restocked shelves, but a slowdown in consumer and business spending pointed to an underlying weakness.

Meanwhile, a separate report from the Labor Department suggested the jobs market continued to gradually improve.

Gross domestic product expanded at a 2.8 percent annual rate, the quickest pace since the third quarter of 2012, the Commerce Department said on Thursday. It was an acceleration from a 2.5 percent clip in the second quarter and beat economists’ expectations for a 2.0 percent rate.

Details of the first estimate of third-quarter GDP were generally weak, with inventories contributing 0.83 percentage point to GDP growth. Excluding inventories, the economy grew at a 2.0 percent rate after expanding at a 2.1 percent pace.

Consumer and business spending growth slowed sharply, lending the report a weak tone and validating the Fed’s decision to stick to its $85 billion monthly bond-buying program.

With near-term growth prospects not that bright, a reduction in the purchases, which aim to keep interest rates low, is not expected this year.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, expanded at a 1.5 percent rate, slowest pace since the second quarter of 2011. It grew at a 1.8 percent rate in the April-June period.

There are a few caveats to keep in mind here. First of all, this is merely the initial estimate of a number that will be revised twice more over the coming three months, so it’s best to withhold judgment about what this might mean going forward. Better numbers to keep an eye on, or now will be the Jobs Report, which comes out tomorrow, and the personal income and spending numbers, especially as we head into the Christmas shopping season. Second, it’s worth noting that, yet again, there seems to be very little evidence that the sequester has had much of an impact on economic growth at all despite all the predictions of doom and gloom that preceded its implementation. Third, as noted, a lot of the growth reported today seems to becoming in inventory accumulation and we’re likely to see things slow down in that regard in the 4th quarter. Finally, it’s unclear how the government shutdown is going to impact the 4th quarter numbers, again tomorrow’s Jobs Report will be the first indication of what impact of the shutdown will ultimately be. By all indications, though, this initial report doesn’t necessarily demonstrate the kind of strength that the topline numbers are indicating. At the very least, further evidence will be needed to see whether there’s anything to celebrate here.

On the whole, of course, 2.8% growth is good, but good isn’t great and we’re sorely in need of some great economic growth numbers right about now. It would help the jobs market, it would likely lead businesses to feel more confident about investment in the future, and it would give the Federal Reserve some cushion to allow it to end quantitative easing, which obviously has to come to an end at some point in the future.  However, we’re not there yet. Of course, that’s been the story of this entire recovery, hasn’t it? We’re outperforming Europe for the most part, and there’s been steady, if pathetically weak, jobs growth over the past four years or so, but we’re hardly in the same position we ought to be given the history of previous recoveries. Until that happens, the near universal assessment of the public that the economy is not in good shape, which was reflected in exit polling from New Jersey and Virginia on Tuesday, will remain reality.

FILED UNDER: General
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. john personna says:

    We’re outperforming Europe for the most part, and there’s been steady, if pathetically weak, jobs growth over the past four years or so, but we’re hardly in the same position we ought to be given the history of previous recoveries. Until that happens, the near universal assessment of the public that the economy is not in good shape, which was reflected in exit polling from New Jersey and Virginia on Tuesday, will remain reality.

    I’ll give you a chance, Doug. Can YOU tell us in what ways this recession differed from (recent) previous ones?

    Can you tell us how those differences shape the recovery time?

  2. john personna says:

    As an aside, I got a kick out of

    Hans Rosling: How much do you know about the world?

    It does actually put these sort of economic numbers in a global, and global transitions, perspective.

  3. michael reynolds says:

    We need a new stat: what growth would be without Republicans forever shutting down the government, multiplying uncertainty, killing stimulus, cutting spending and in general refusing to participate in government.

  4. C. Clavin says:

    Excellent job ignoring the impact of austerity, Doug…and thus not really discussing the reason for slow growth while at the very same time whining about slow growth.
    I knew I could count on you. Consistency is heart-warming sometimes…even if it’s consistent incompetence.
    http://www.theatlantic.com/business/archive/2013/11/how-washington-is-wrecking-the-future-in-2-charts/281147/
    http://www.nytimes.com/interactive/2012/05/04/business/economy/off-the-charts-shrinking-government.html?ref=economy&_r=0
    http://research.stlouisfed.org/fredgraph.png?g=2Dx

  5. C. Clavin says:

    We need a new stat: what growth would be without Republicans

    Fixed that for you…pithy is good.

  6. stonetools says:

    I’ll give you a chance, Doug. Can YOU tell us in what ways this recession differed from (recent) previous ones?

    Since Doug won’t respond, let me. Early in the recession, a black man became President, and then the conservative party (that Doug often votes for) did everything they could to prevent the economy form recovering, and continues to do so till this day.

  7. Ron Beasley says:

    It may be about time that we recognize this is the new normal. Between industrial robots and now 3D printing the old working middle class is history. Most of our so called GDP is in the financial sector. Rubbing money together to make more money does not make an economy (note ; some of this is plagiarized from the best money rubber of them all, Warren Buffet) .

  8. C. Clavin says:

    @Ron Beasley:
    It’s only the new normal if we continue to slash the Public Sector for no real reason…other than maybe that we have a black President.
    A 2.8% growth in the face of Austerity…the lowest rate of spending since WW2; think about that…is pretty f’ing impressive.
    If not for the failed economic theories of Republicans we could be at 3.8% or higher and looking at a robust recovery.
    Doug’s getting the recovery he wants…what you call the new normal.

  9. gVOR08 says:

    At the link NYT said – “Many experts have blamed the economy’s lukewarm performance recently on what they term the “fiscal drag” coming from Washington, mainly across-the-board spending cuts imposed by Congress as well as tax increases that went into effect at the beginning of the year.”

    Doug said – “Second, it’s worth noting that, yet again, there seems to be very little evidence that the sequester has had much of an impact on economic growth at all despite all the predictions of doom and gloom that preceded its implementation.”

    And in an earlier thread on Doug’s Cuccinelli hasn’t called McCauliffe post , C. Clavin said – “Shouldn’t you be writing a post that whines about slow growth…but totally ignores the impact of austerity on that growth?”

    Doug did later say – “We’re outperforming Europe for the most part, and there’s been steady, if pathetically weak, jobs growth over the past four years or so, but we’re hardly in the same position we ought to be given the history of previous recoveries.”

    Why do we have a half-assed recovery when Europe has none? Maybe our half-assed stimulus? Could it be that if we had done stimulus the way we did in past recessions this recovery might look more like past recessions?

  10. gVOR08 says:

    @Ron Beasley: To misquote Aragorn, probably badly – There may come a day when the jobs of men fail because of robots and 3D printers, but it is not this day.

    However, that day may well come. The current fight over a safety net, income distribution, and taxes is, in the long run, about whether that day will look more like Star Trek or Mad Max. Or maybe Sweden or Somalia.

  11. al-Ameda says:

    The American economy grew at an annual rate of 2.8 percent in the third quarter, significantly better than economists had expected and the fastest pace this year.

    Yes we have a steady modest recovery going on.

    But to hear Republicans, the catastrophic crash of 2008 never happened, and the loss of approximately 20% of our national wealth should have had no lasting consequences, and we should be perking along at growth rates of 4% to 6% growth.

  12. C. Clavin says:

    @john personna:

    I’ll give you a chance, Doug. Can YOU tell us in what ways this recession differed from (recent) previous ones?

    Crickets.

  13. C. Clavin says:

    @al-Ameda:

    we should be perking along at growth rates of 4% to 6% growth.

    The average since ’47 is about 3%…so perking along at 4-6% for any length of time is probably a fantasy…but it is a fantasy Romney indulged in during his failed campaign.
    http://www.econbrowser.com/archives/2012/01/gdp_growth_jan_12.gif

  14. stonetools says:

    What is irritating about these posts is that Doug repeatedly makes the same post about the disappointing economic recovery, but never goes on to ask WHY the recovery is so slow. Maybe its because the right wing economists he reads are clueless about that. More likely, both he and they are so blinded by their discredited right wing ideology that they can’t see what needs to be done.

  15. anjin-san says:

    “but we’re hardly in the same position we ought to be given the history of previous recoveries.”

    To ignore the historic severity of the damage to the economy leading into the recession might be understandable if you were a high school student. It would not fly for a college sophomore. For someone with your level of education to keep repeating this is simple hackery.

    Ron has also pointed out, correctly, that there are structural changes taking place in the economy. I remember a piece Robert Reich wrote a number of years back, talking about the “X” recession. Not a V or a W, because he said he saw no road that would take us back to where we were before the crash, making the future an unknown where previous markers and indicators would lose some or all of their meaning.

  16. john personna says:

    @stonetools:

    In fairness, the Fed keeps issuing the same report as well 😉

  17. al-Ameda says:

    @C. Clavin:

    The average since ’47 is about 3%…so perking along at 4-6% for any length of time is probably a fantasy…but it is a fantasy Romney indulged in during his failed campaign.

    Frankly, Republicans willfully ignore the effects of the catastrophic collapse of 2008 – a loss of nearly $18 Trillion in national wealth, of which we’re recovered about 50%-60% in the years since 2008.

    Also, and more to the point, those guys have the recovery they wanted – reduction in government employment (which drags down the overall growth rate and employment numbers) and a reduced rate of growth in government spending. This is EXACTLY what Republicans wanted and now they’re complaining that growth is steady and moderate? Show them the door, please.

  18. john personna says:

    @al-Ameda:

    Remember the good old days? When Republicans talked about Obama’s 2009 job loses? How “he owns this recession?”

    Good times, good times.

  19. Rick DeMent says:

    I would say that while the economic catastrophe of 2008 is a big cloud hanging over the US, we were not really chugging along all that great before it hit. This is something that is hardly ever mentioned. specifically that before the current recovery, the post 2001 recession recovery was tepid at best even with the huge tax cut designed to stimulate the economy. And that recession was a rounding error compared to 2008.

    At the same time oil prices have jumped form about $30 /br to over $100 (in consent 2010 dollars). That’s a difference of $1.4 billion per day to keep up the same level of economic activity. and people wonder why many feel the stimulus was too low, it barley covered the increased cost of energy.

  20. Ben Wolf says:

    @michael reynolds:

    We need a new stat: what growth would be without Republicans forever shutting down the government, multiplying uncertainty, killing stimulus, cutting spending and in general refusing to participate in government.

    The current group? Can you say Great Depression II?

  21. Rob in CT says:

    @Rick DeMent:

    Bingo. To an extent, the music stopped in 2001. It got papered over via increased household debt & the housing bubble, but eventually that burst and laid bare some problems.

    Now there are some that agree with this but think the logical conclusion is that we must resist efforts to reflate, as the result will be no better than 2002-2008, followed by another nasty crash. My thinking is that if we take the same basic approach we took before (keep taxes low at the top, fellate Wall St., and cross our fingers), that may indeed be the result. I keep coming back to the idea that we need: a) WPA 2.0; and b) serious policy changes that do something about our persistent & massive trade deficits. Neither party, of course, is offering either of those things (granted, if the Dems did, they’d be flayed by all Serious People).

  22. C. Clavin says:

    @Rick DeMent:

    the huge tax cut designed to stimulate the economy.

    Tax cuts are notoriously poor stimulus….especially when they are aimed primarily at the wealthy. That was a serious error on Obama’s part as well…in the effort to be bi-partisan he allowed a ton of tax cuts when he shouldn’t have. What we should do is drop about $300B on infrastructure repair right now…while money is almost free and labor is plentiful. But people like Doug would rather whine about a slow recovery than actually do anything about it.

  23. becca says:

    I’m a big picture kind of person.

    The whole world is out of balance now that neo-liberal agenda has shown its ugly head. Privatization of the common good and deregulatory fever has been a disaster for most of the world. Concentrated wealth, much ill-gotten, has created a LOT of resentment from the 99%.Civil societies cannot survive with a quarterly return mentality, but the wealthy rent-seekers refuse to acknowledge reality. They have no allegiance to country or continent. They worship their wealth, as it defines them.

    The War on Poverty will be replaced by a War on Criminal Wealth,with all the nasty bits, if we keep this shit up.

  24. john personna says:

    @Rick DeMent:

    For what it’s worth, the Dot Com crash, the Greenspan easy money, the Bush Stimulus, and what I considered and over-forced economy, going into the housing boom, are part of my narrative.

    And I’m not really alone in that.

  25. john personna says:

    @becca:

    That is not what I’d call the story at all.

    I’d start with the idea that the world’s prosperous nations are all some sort of market democracy. They made different divisions between private and public sector, but they all stood in contrast to the truly communist.

    With the fall of communism all of those prosperous market democracies took as a lesson that they should pull back from “socialism.” That some in northern Europe were experiencing a cash crunch with a fall in North Sea oil revenues made it a double imperative.

    I think we are actually at the end of that pendulum swing, and I hope starting to be more discerning than “less socialism.”

    I mean, case in point, “privatizing” the US Postal Service was pretty stupid and self-defeating

  26. michael reynolds says:

    I’m frustrated by people who think that manipulating a tax rate here and an interest rate there will somehow, presto! yield jobs.

    We have a system whose highest values are productivity and profit. Productivity from the worker, profit for the boss. Both are by their very nature inclined to reduce employment, not create employment. Higher productivity means you need fewer people to make the same goods. So I guess I’m baffled as to how pursuing goals which include (at least tangentially) reducing the number of jobs will increase the number of jobs.

    In the pursuit of productivity and profit we ship jobs overseas, we welcome low-wage foreign workers into the US and we try our clever best to replace humans with machines and software. And somehow. . . jobs!

    Take the internet bubble and the housing bubble out of the equation and don’t we see slow growth and relatively high unemployment as the new normal? Shouldn’t we be looking at ways to adjust to that rather than continue to pursue what looks to me like nostalgia for a bygone era?

  27. C. Clavin says:

    And this just in….Ted Cruz’s shutdown cost between $2 and $6 Billion with a “B”. Of course this is just Government $….and does not reflect the effect that had on the Private Sector…so it’s probably more.
    http://www.whitehouse.gov/sites/default/files/omb/reports/impacts-and-costs-of-october-2013-federal-government-shutdown-report.pdf
    Heck-of-a-job Cruzie.

  28. Rick DeMent says:

    @C. Clavin:

    Right my point was that the tax cuts didn’t do squat for growth. We had these huge tax cuts and growth was marginal at best considering the deficits they have produced in the last decade +.

  29. C. Clavin says:

    @michael reynolds:

    We have a system whose highest values are productivity and profit.

    Back in the 70’s some guys wrote a paper claiming that shareholder value was the ultimate measure of success. Jack Welch later repeated this and it became mantra. My own personal theory is that this is the true genesis of Supply-Side Economics…a failed theory. But what better way to increase shareholder value than to just not pay taxes? Reagan took their mantra and ran with it. And we are still paying the cost.
    What we need to do is return to stakeholder value…where the measure of success depends on a combination of financial success, usefulness to society, and satisfaction of employees and other stakeholders, such as customers. Stakeholder value leads to shareholder value…just as increasing demand leads to jobs needed to produce supply…and not vice versa. Supply does not generally create demand.
    This is how it was in the by-gone eras that so many people seem nostalgic for. But those same people never want to talk about this, or the tax rates of those era’s.

  30. grumpy realist says:

    At this moment, cutting rates produces no results. The Fed is pushing on a limp noodle.

  31. C. Clavin says:

    @grumpy realist:

    The Fed is pushing on a limp noodle.

    They make pills for that, don’t they?

  32. Ron Beasley says:

    The real currency is neither fiat currency or precious metals, it’s energy. In the beginning that energy was in the form of grain. The form of energy became cheap fossil fuels a couple of hundred years ago which coincides with the increases in what now refer to as GDP. Growth had been flat until then. The “cheap” fossil fuels are all gone and there is no replacement that will make it possible for us to maintain the energy consumption we had when the GDP was increasing rapidly

  33. anjin-san says:

    Both are by their very nature inclined to reduce employment, not create employment.

    A few years back I was the entire marketing department for a 30 million dollar a year company. Web, print – design, development, prepress, and even some in-house printing, Copywriting, corporate events, sales support, the whole shebang.

    All I needed was a few very powerful computers, the right software, and internet access. If I needed to ramp up quickly for new software or a project outside of my skill set, there are tutorials all over the internet. FTP for instant file distribution.

    So in one sense, the productivity gains we have from modern computers are great. In another way, not so great. One person can do the work three used to do.

  34. becca says:

    @john personna: That’s a bit too myopic a view.

    We had to deregulate the financial industry and attempt to destroy labor and environmental protections to keep fighting the pinkos?

    Sure.

  35. john personna says:

    @becca:

    No, not because we were fighting them, because we won. We saw the fall of the Berlin Wall as a reason to throw out those banking regulations.

    Triumph of the free market, dontchaknow.

  36. crysalis says:

    Economy Grows At Good, But Far From Great, Rate In 3rd Quarter

    Oh, yeah….it’s “Good” (not). And the growth numbers will be – “unexpectedly” I’m sure – revised down later, and it will all be someone else’s fault, just as it has been for the last five years.

    Attention liberals. With Obama’s recent exposure as a blatant, unabashed liar, you’re down to about your last 1/4 inch of rope when it comes to anyone believing the “it’s someone else’s fault” bullsh*t.

    The biggest traps, we build for ourselves. It is a small man indeed that blames others for his own inadequacies.

  37. C. Clavin says:

    So Crysalis …you’re saying Obama is responsible for the austerity we are, as a nation, pursuing ?

  38. C. Clavin says:

    Also Crysalis … You do realize that growth under Bush43 was less than this… That compared to the last Republican President 2.8 is terrific growth…Right?

  39. C. Clavin says:

    And Crysalis… You realize that Bush 43 made the Government much, much, larger while achieving less growth…right?

  40. C. Clavin says:

    The Monthly job numbers are out…delayed by Ted Cruz’s $6B Government Shutdown.
    Doug will post another whiny diatribe on this and the weak recovery later…and when he does he will most likely ignore this:

    Federal government employment declined by 12,000 in October. Over the
    past 12 months, federal government employment has decreased by 94,000.

    He will also ignore the fact that in all previous recoveries in recent history we have added Public Sector jobs…so there is a net loss here of…what…200,000 jobs? Not to mention the jobs that are created by those 200,000 jobs.
    And most of all he will fail to acknowledge that this is the result of shrinking the Government…policy he enthusiastically endorses. He will fail to note that this is the economy he wants. In short…he will fail.

  41. al-Ameda says:

    @crysalis:

    Attention liberals. With Obama’s recent exposure as a blatant, unabashed liar, you’re down to about your last 1/4 inch of rope when it comes to anyone believing the “it’s someone else’s fault” bullsh*t.

    Oh, so you missed the financial collapse of 2008, the worst economic disaster since the Great Depression? Thanks for participating.