3Q GDP Advance Estimate of 2% Likely Too High

3Q2010 GDP Advance Estimate of 2% Likely Too High

GDP growth of 2% is terrible.  For Joe Sixpack, this is a zero jobs growth economy.  Yet, this estimated third quarter GDP growth  from the BEA (Bureau of Economic Analysis, U.S. Dept. of Commerce) is likely to be reduced in the next two revisions.  But first the headlines 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 2.0 percent in the third quarter of 2010,(that is, from the second quarter to the third quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.7 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, federal government spending, and exports that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The small 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.

As the headline suggests, there has been a backward revision to GDP which only affected 2Q2010 GDP revising it from 1.6% growth to 1.7% growth.  The first estimate is based on fairly firm July data – with August and September data based on incomplete, extrapolated, or surveyed  information.  Econintersect’s analysis is showing a slowing of growth MoM throughout this quarter.  Historically, the first GDP is understated when the economy is expanding, and overstated when the economy is slowing.

Still, analysis of the data offers clues about the economy – knowing that the data is knowledgeable guesses.   The primary takeaway is how the major elements of GDP are trending.

Personal Expenditures continues to be a larger and larger component of GDP.  Gross Private Domestic Investment is again on the rise.  The trade balance deficit is growing becoming a bigger negative factor to GDP.  Government expenditures grew despite a slight drop in state expenditures.  A complete table of the data:

Again, Econintersect believes that GDP will be reduced in the subsequent releases as many indications are that the economy has continued to decelerate throughout this quarter.

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