Third Quarter 2010 GDP Revised Up to 2.5% Annual Growth Rate

The 3Q2010 Gross Domestic Product was revised upward from 2.0% to 2.5%.  The government’s press release stated in part:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.5 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.7 percent.

The GDP estimates released today are based on more complete source data than were available for the advance estimate issued last month. In the advance estimate, the increase in real GDP was 2.0 percent.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, nonresidential fixed investment, exports, and federal government spending that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the third quarter primarily reflected a sharp deceleration in imports and accelerations in private inventory investment and in PCE that were partly offset by a downturn in residential fixed investment and decelerations in nonresidential fixed investment and in exports.

In general, when GDP rises between estimates – it is caused by the elements of GDP doing better in the last part of the quarter then the first part of the quarter being reported. The first estimate to a large part is based on survey and extrapolations of the data from the first half of the period.    This 2.5% increase was within the consensus of estimates of second estimate of 3Q2010 GDP.

Proper analysis of the data is better left to the third estimate scheduled for release 22 December 2010.  However, general the majority of the contribution to the increase came from a higher rate of growth of consumer spending, and was aided by a much slower rate of increase for imports (which is a negative in the GDP methodology).

The real GDP numbers which are seasonally adjusted and stated as annual growth as follows:

GDP is only one way to look at the economy – and a 2.5% growth rate is too slow to generate many jobs.  But regardless of the method used,  the economy is growing very slowly but has not fully recovered from the Great Recession.  Using chained 2005 dollars (equal weighted dollars) the peak quarter 4Q2007 was $13,363.5 billion while 3Q2010 was $13,277.4 billion.  At the current rate of GDP growth, the economy could be considered fully recovered in 4Q2010 or 1Q2011.

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