Does 3Q2010 GDP Suggest Lower 4Q GDP?

The 3rd and final estimate for 3Q2010 gross domestic product (GDP) has been released.  The headlines:

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 2.6 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.7 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 2.5 percent.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures, 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 an acceleration in private inventory investment that were partly offset by a downturn in residential fixed investment and decelerations in nonresidential fixed investment and in exports.

Motor vehicle output added 0.49 percentage point to the third-quarter change in real GDP after subtracting 0.06 percentage point from the second-quarter change. Final sales of computers added 0.29 percentage point to the third-quarter change in real GDP after adding 0.03 percentage point to the second-quarter change.

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.

In the BEA’s own words:

The “third” estimate of the third-quarter increase in real GDP is 0.1 percentage point, or $1.1 billion, higher than the “second” estimate issued last month, primarily reflecting an upward revision to private inventory investment that was largely offset by a downward revision to personal consumption expenditures.

So the initial analysis of the second estimate (analysis here) remains valid.  Moving on to personal income expenditures – it is clear the economy is gaining traction because of the consumer who is coming back to the table in purchasing of goods.

On the corporate and government side of the balance sheet, the government’s contribution is beginning to shrink while business is not making a large contribution.

Much of the recently passed tax law, outside of the payroll tax reduction, is not a stimulus to GDP as it allowed the status quo to continue.  And, of course, the payroll tax reduction has not yet occurred in the fourth quarter.  The question for 4Q2010 is whether the growing consumer segment will continue to offset the weaker business sector, and the declining government sector.  The government’s sector’s decline is driven by the states’ budget crisis combined with a declining contribution from the 2009 stimulus.

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 2.6 percent in the third quarter of 2010, (that
is, from the second quarter to the third quarter), according to the "third" estimate released by the Bureau
of Economic Analysis.  In the second quarter, real GDP increased 1.7 percent.

      The GDP estimate released today is based on more complete source data than were available for
the "second" estimate issued last month.  In the second estimate, the increase in real GDP was 2.5
percent (see "Revisions" on page 3).

      The increase in real GDP in the third quarter primarily reflected positive contributions from
personal consumption expenditures, 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 an acceleration in private inventory investment that were partly offset by a downturn in
residential fixed investment and decelerations in nonresidential fixed investment and in exports.

      Motor vehicle output added 0.49 percentage point to the third-quarter change in real GDP after
subtracting 0.06 percentage point from the second-quarter change.  Final sales of computers added 0.29
percentage point to the third-quarter change in real GDP after adding 0.03 percentage point to the
second-quarter change.

Related Articles

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

Tax Law Stimulus by John Lounsbury

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