Final 3rd Quarter GDP Growth Number Comes In At 4.1%
Based solely on the numbers, the economy grew pretty strongly in the 3rd Quarter of 2013:
WASHINGTON — The United States economy grew at a torrid 4.1 percent annual pace in the third quarter, the Commerce Department said Friday. That is the strongest growth in nearly two years, and only the third time the economy has expanded that quickly since 2006.
The Commerce Department revised its estimate of third-quarter growth to 4.1 percent from 3.6 percent in this release. The refined estimate is based on “more complete source data,” the department said, showing personal consumption and investment in things like factories to be higher than previously thought.
Economists had expected the final estimate of growth to be unchanged from that earlier 3.6 percent. But data showed that consumers have stepped up their spending on health care, houses and cars as the strengthening recovery has led to a sharp drop in the unemployment rate and rising home values have improved household balance sheets.
The Commerce Department bumped up its estimate of consumer spending, which accounts for more than two-thirds of economic activity, to a 2 percent rate from 1.4 percent, reflecting higher spending on goods and services.
The newfound strength has spurred the Federal Reserve to begin to unwind its bond-buying program, cutting its monthly purchases of Treasury and mortgage-backed debt. “In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the committee decided to modestly reduce the pace of its asset purchases,” the Fed said in a statement this week.
The growth came from a broad range of sources: personal consumption, exports, investment in new factories and houses, state and local government spending and a rise in business inventories. Federal spending cuts and rising imports were a drag on growth, the department said.
Economists expect growth to slow in the fourth quarter, in part because some of the upswing has resulted from businesses building up their inventories.
While Wall Street “has been concerned with the swing in fiscal policy between 2013 and 2014, they should be focused on the swing likely in inventory,” said Steven Ricchiuto, the chief economist at Mizuho Securities USA, in an email. “A lot of this inventory is cars and light trucks.”
The St. Louis-based forecasting firm Macroeconomic Advisers expects growth to slow to a 2.3 percent pace in the fourth quarter, before picking up again next year.
“Receding fiscal drag, the waning effects of the sharp rise in yields since earlier in the year, continued improvement in credit terms and equities and building confidence underlie the move to growth of 3 percent or above over the next few years,” the firm said this week.
I made note of the inventory issue when the second revision came out last month, and given that this remains the largest segment responsible for the rise in GDP Growth in the July to September time period, we should not necessarily take this number as a guide to where thins are headed in the future. The 4th Quarter number, the first estimate of which comes out in late January, is likely to show much slower growth much of which will depend on just how robust Christmas sales revenue ends up being. For example,while high Christmas sales will obviously be a good thing the impact of those sale will be dampened somewhat if they came about largely to due to deep discounting then it’s not necessarily going to help GDP very much.
Nonetheless it’s worth noting that today’s upward revision was driving in large part by increased spending on personal expenditures, which is in general a good sign for the economy. So, yea, this is generally good news. The question is whether it continues into 2014, or whether we’re just looking at another momentary blip.