Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
Stocks Bear Market Crash Towards New All Time Highs as QE3 End Awaits QE4 Start - 31st Oct 14
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

BEA Raises U.S. 3rd Quarter 2012 GDP Growth Estimate to 3.09%

Economics / US Economy Dec 21, 2012 - 05:27 AM GMT

By: CMI

Economics

In their third (and "final") estimate of the US GDP for the third quarter of 2012 the Bureau of Economic Analysis (BEA) found that the economy was growing at a 3.09% annualized rate, an upward revision of +0.42% from the previously published estimate for that quarter and 1.83% better than the second quarter of 2012.



The improved headline number came primarily from substantial upward revisions to exports, consumer services and government expenditures, and a decrease in imports. Minor upward revisions in consumer goods and fixed investments was offset by a downward revision to inventories. The annualized growth rate for the BEA's bottom line "real final sales of domestic product" was also revised up significantly to 2.36%.

Perhaps most surprisingly, for the first time since the fourth quarter of 2009 real state and local government expenditures are now reported to be growing. In fact, surging governmental expenditures at all levels contributed +0.75% to the headline number -- with nominal defense spending alone growing at an astounding annualized 13.9% rate.

For this set of revisions the BEA assumed annualized net aggregate inflation of 2.74%. In contrast, during the third quarter the seasonally adjusted CPI-U published by the Bureau of Labor Statistics (BLS) recorded a substantially higher 4.98% annualized inflation rate. As a reminder: an understatement of assumed inflation improves the reported headline number -- and in this case the BEA's low "deflater" (more than 2% below the CPI-U) significantly boosted the published headline rate. If the CPI-U had been used to convert the "nominal" GDP numbers into "real" numbers, the reported headline growth rate would have been a much weaker 0.93%.

And the contraction rate for real per capita disposable income is now reported to have moderated slightly (although it is still reported to be contracting at a -0.24% annualized rate). During the past 6 quarters (18 months) real per capita disposable income has shrunk by $73 per year -- with $20 of that loss occurring during the past quarter. Once again the combination of increasing consumer expenditures coupled with shrinking disposable income raises concerns about the sustainability of the current recovery.

Among the notable items in the report:

-- The contribution of consumer expenditures for goods to the headline number was revised upward to 0.85% (from 0.83% in the previous report).

-- The contribution made by consumer services increased to 0.26% -- up from the 0.16% in the previous report.

-- The growth rate contribution from private fixed investments was largely unchanged at 0.12% (up slightly from 0.10% in the prior report).

-- The contribution from inventories remained relatively high (+0.73%), providing about a quarter of the headline number. Over time inventory growth should be a nearly zero-sum game, and presumably this quarter's growth from inventory building will be offset in future quarters by reduced production to shrink excessive inventories.

-- From a long term perspective, the biggest change in the third quarter's economy came from sharply increasing governmental expenditures. Growth in government spending at all levels is now reported to have added +0.75% to the headline number after subtracting -0.60% as recently as the first quarter of 2012.

-- Exports added more than a quarter of a percent to the headline number (+0.27%). The improving export picture seems to imply an improving global economy despite any number of reports to the contrary.

-- And reduced imports actually added +0.11% to the headline growth rate (a change in direction from the -0.02% previously reported).

-- The annualized growth rate of "real final sales of domestic product" was revised sharply upward to 2.36%, some 0.46% above the prior report and now at the same level as reported for the first quarter of 2012.

-- Real per-capita disposable income was down $20 during the quarter (to $32,691 per year). This is down $73 from the $32,764 reported for the 1st quarter of 2011, now some 6 quarters ago. The reported annualized contraction rate of -0.24% benefits from the relatively low deflaters used by the BEA. If per-capita disposable income were "deflated" using the BLS CPI-U (which presumably is what consumers actually experience when spending their incomes) the annualized contraction rate for per capita consumer spending power is more like -3.65%.

The Numbers (as Revised)

As a quick reminder, the classic definition of the GDP can be summarized with the following equation:

GDP = private consumption + gross private investment + government spending + (exports - imports)


or, as it is commonly expressed in algebraic shorthand:

GDP = C + I + G + (X-M)


In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows:

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Finals Sales of Domestic Product" and listed the quarters in columns with the most current to the left:


Summary

Nearly all of the detail in this revised report showed some improvement from the prior estimate. And the roughly 3% headline growth rate is well within the range of what we should be expecting some 13 quarters into an economic "recovery." However, removing the impact of the governmental spending surge, growing inventories and foreign trade removes over three-fifths of the apparent growth.

Recapping the issues that merit caution moving forward:

-- About a quarter of the headline growth rate came from a surge in governmental spending.

-- Inventory growth also contributed about a quarter of the headline growth rate. The BEA's inventory valuations are notoriously dependent on the deflators used, and the wild fluctuation of these numbers from earlier reports raises at least some concerns about their credibility. But even assuming that the reported numbers are correct, substantial growth in current inventories does not bode well for factory production schedules in future quarters.

-- The continued contraction of per-capita disposable income means that households are under sustained pressure. Any growth in consumer spending is not coming from fatter paychecks -- it is coming instead from other sources, including refinancing, strategic defaults, reduced personal savings (which now reportedly shrank by $25.9 billion during the quarter) and increased student loans.

Consumer Metrics InstituteTM
Home of Daily Consumer Leading Indicators

http://www.consumerindexes.com

© 2012 Copyright Consumer Metrics Institute - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Consumer Metrics Institute Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014