Don’t get me wrong. 5% growth is better than a kick in the butt with a brass-toed shoe. However, that’s not a trend yet and, well, we’d need a year of that kind of growth to be getting back into the territory that we’ll need to be in to put the long-termed unemployed back to work.
Let’s look a little more closely at the report:
Real personal consumption expenditures increased 3.2 percent in the third quarter, compared with an increase of 2.5 percent in the second. Durable goods increased 9.2 percent, compared with an increase of 14.1 percent. Nondurable goods increased 2.5 percent, compared with an increase of 2.2 percent. Services increased 2.5 percent, compared with an increase of 0.9 percent.
Real nonresidential fixed investment increased 8.9 percent in the third quarter, compared with an increase of 9.7 percent in the second. Investment in nonresidential structures increased 4.8 percent, compared with an increase of 12.6 percent. Investment in equipment increased 11.0 percent, compared with an increase of 11.2 percent. Investment in intellectual property products increased 8.8 percent, compared with an increase of 5.5 percent. Real residential fixed investment increased 3.2 percent, compared with an increase of 8.8 percent.
Real exports of goods and services increased 4.5 percent in the third quarter, compared with an increase of 11.1 percent in the second. Real imports of goods and services decreased 0.9 percent, in contrast to an increase of 11.3 percent.
Real federal government consumption expenditures and gross investment increased 9.9 percent in the third quarter, in contrast to a decrease of 0.9 percent in the second. National defense increased 16.0 percent, compared with an increase of 0.9 percent. Nondefense increased 0.4 percent, in contrast to a decrease of 3.8 percent. Real state and local government consumption expenditures and gross investment increased 1.1 percent, compared with an increase of 3.4 percent.
The change in real private inventories subtracted 0.03 percentage point from the third-quarter change in real GDP after adding 1.42 percentage points to the second-quarter change. Private businesses increased inventories $82.2 billion in the third quarter, following increases of $84.8 billion in the second quarter and $35.2 billion in the first.
A few observations. First, personal consumption expenditures accounts for nearly three-quarters of GDP so small moves there loom much larger for the overall economy. I’d be interested in seeing a more detailed breakdown before I make any pronouncements.
However, note that the BEA actually reduced its estimate of durable goods orders. That’s not good. The improvement in the revision there was due to increases in non-durable goods and services, most of which I would presume to be healthcare.
Nonresidential fixed investment declined from the second quarter to the third. Exports increased and imports decreased, most of which I would attribute to a lower price for oil.
Government spending increased sharply. That nearly always happens at the start of the federal government fiscal year, especially (for reasons I’ve never been able to figure out) in election years. I wonder whether that’s related to the cycle imposed by the federal government’s fiscal year? Don’t expect spending based on that to develop into a trend.
While I laud 5% growth, I don’t see a lot there that will continue into future quarters. We should probably start looking at holiday season retail sales to see what’s really going on.
But the federal government New year doesn’t start until Oct 1.
Poorly phrased. Probably should have just written something about the federal fiscal year.
Yeah, but doesn’t the federal fiscal year start Oct 1, or have I forgotten that, too?
Yes, that’s right. The question I’m raising is what is the relationship between the federal fiscal year and increased federal spending? I suspect there is one but I haven’t actually studied the matter.
Forget the headline number as a forecasting tool. There’s a global commodities collapse underway, with oil and iron down 50% in less than six months. That’s a huge drop in demand for two items critical to a growing economy.
See, Wolf Richter: First Oil, Now US Natural Gas Plunges, “Negative Igniter†for New Debt Crisis.
Ben, is it a collapse of prices, or a collapse in demand? Is the funny money just departing for the stock markets?
I’m working up a post on this subject. Short version: you’ve got to disaggregate the drop in oil prices from the general drop in commodities. There’s been about a 25% decline in commodities since 2011.
I’d attribute that to China. The world is experiencing the problems that are inherent to dealing with a country of 1.5 billion people and a major economy that’s in many ways still a command economy.