Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
US Bonds and Related Market Indicators - 27th Jun 17
Stocks At Record Highs: Market Sentiment Still Bullish - 27th Jun 17
Stock Market Running Out of Steam - 27th Jun 17
Gold Back With A Vengeance As Bitcoin Bubble Bursts - 26th Jun 17
Crude Oil Trade & Nasdaq QQQ Update - 26th Jun 17
Gold and Silver Ongoing Consolidation May End Soon - 25th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 25th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

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

© 2005-2017 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

Catching a Falling Financial Knife