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November 30, 2005
2005Q3 GDP growth revised to 4.3%
From the Wall Street Journal:
The Commerce Department reported Wednesday that gross domestic product, the broadest measure of U.S. economic activity, grew at a seasonally adjusted annual rate of 4.3% in July through September. That was stronger than the 3.8% rate of growth seen in an earlier estimate of GDP issued a month ago, and was the best showing since an identical 4.3% gain in the first quarter of 2004.
Also,
Real final sales of domestic product, which is GDP less the change in private inventories, advanced at a 4.7% annual rate in the third quarter, above the originally estimated rate of 4.4% while below the second-quarter's 5.6% growth.
Read the report from the BEA.
Consumer and business spending was higher than originally estimated. The PCE and GDP deflator were revised down a tenth of a percent each (and that's including food and energy, in case you're interested).
Bloomberg also has the story. Here's a sampling:
``The economy is booming,'' said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. Englund correctly forecast third-quarter growth. ``As much as people may have been concerned about gas prices, consumers took the hit and now gas prices are falling.''
and...
Manufacturing in the Chicago area expanded for a third straight month in November, the National Association of Purchasing Management-Chicago said today. The group's index, based on a survey of executives in the region, fell to 61.7 from October's 62.9. Readings higher than 50 signal growth and the November figure exceeded the 60.5 average for this year. A measure of orders backlogs was the highest since July 1994.
Hard to put a dismal face on that data.
Treasury Secretary John Snow heralded the GDP report as ``very good news for American workers and those looking for jobs,'' even as a recent poll showed many Americans still perceive the economy as weak. A survey released Nov. 28 by the Manchester, New Hampshire-based American Research Group found that 43 percent of those questioned said the economy was in a recession, while 44 percent said it wasn't.
OK. Believe me. Despite my usual attempts to be optimistic, I'm aware of all of the reasons to be pessimistic. The yield curve is flat and job growth has been sluggish, and so on. But 43% of people thinking the economy is in recession? Half of those surveyed who have an opinion at all? Seems a little high, don't you think?
If yesterday's news was "pretty good", today's news is "quite good," I would say.
UPDATE: James Hamilton (Econbrowser) notices improvement in the economy and says,
Putting it all together, what are this month's data telling us? Overall, the numbers are better than expected, so whatever your take on the economy was at the start of the month, you should be a little more optimistic about things now.
And he says it with "emoticons", so be sure to check it out.
UPDATE 2: General Glut is back! He laments the sorry state of personal savings in his post.
UPDATE 3: I said the report is "quite good," others say it's "perfect." Let's not get carried away.
Posted by William Polley at November 30, 2005 11:17 AM
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Comments
Since WW II the quarterly growth rate of real GDP growth has been above 5% some 31% of the time and the average growth rate is 3.5%.
By this standard a 4.3% growth rate is still a C.
Moreover, this cycle has only experience one quarter of growth over 5%.
Posted by: spencer at November 30, 2005 12:26 PM
The variability of GDP growth is lower today than it was in the immediate post-WWII period. The '50s and '60s had many quarters with more than 5% growth, as well as quite a few with -5% growth. We haven't seen anything that large and negative in over 20 years.
I'm looking at the growth series right now, and I have to say that the last couple of years of rather constant 3 to 4% growth jumps out at you as being different. But I don't think it's a bad thing. If I said that I would be happy with growth in the 3.5 to 4.5% range every quarter (a gentleman's "C" grading on the historical curve) does that make me a slacker?
I know what you're saying. David Tufte at VoluntaryXchange (http://voluntaryxchange.typepad.com/voluntaryxchange/2005/07/grading_gdp.html) has posted on this as well. And as much as I agree that there is value to putting the number into context, I think you lose a lot when you reduce it to a grade based on a historical curve.
But you got me thinking about something. More later.
Posted by: William Polley at November 30, 2005 2:22 PM
Like the New Home Sales, this one is hard to believe. Is it GDP per capita? Could we put a finger on the sector that is making the difference? How about the sector that is pulling it down from say 10%?
Spencer, if GDP is above 5% less than a third of the time, I'd give it atleast a B for hitting 5%. Aren't you being a tad stingy with the C grade for hitting "only" 4.3%? [Yes, siding with William] Moreover, why do you prefer this range of data? If the IT is largely responsible for these improvements like Greenspan and others say, shouldn't our focus be narrower?
Last thing: At what cost for these mighty fine looking tomatoes? Is there a correlation between debt levels and GDP growth? If there were no war on terror, would we be doing better or worse with these numbers? Is it possible to screen out products and services that clearly do not add to the nation's productive economic capacity? That flight that takes half an hour longer now because of security enhancements is a more valued product/service than it used to be --no matter the delay. The increased insurance charges on the products making that flight make those products more valuable --no matter their unchanged utility once the flight is over.
The thieves who rob me are adding to the GDP, I just have not been able to figure out how they do it.
Posted by: calmo at November 30, 2005 3:31 PM