Thursday, November 29, 2012

Why GDP Got Stronger

The estimate for third-quarter GDP released this morning shows an economy growing faster than first thought: The revised 2.7 percent growth is the strongest we've seen since the fourth quarter of 2011, when the economy grew at a pace of 4.0 percent. The third quarter of 2012 was stronger than nine out of the last ten quarters.

The biggest positive change to the revisions came from business inventories. In the first estimate, inventories were thought to have subtracted 0.12 percentage points from GDP; now they're figured to have added 0.77 points. The other positive contributor was exports, which swung from costing us 0.18 percentage points to adding 0.14 percentage points.

The biggest detractors were consumer spending and business investment. Growth in consumer spending dropped from 2.0 percent in the first estimate to 1.4 percent now - a decline from the 1.5 percent reported for the second quarter of 2012. Business investment, which had been reported as dropping by 1.3 percent, is now estimated to have fallen by 2.2 percent - the first quarter in which it's dropped since Q1 of 2011.

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