Another Tepid Quarter for GDP

BEA released its first estimates for third-quarter GDP yesterday. Headline growth was a disappointing, if not surprising, 2.0%.

Here’s my usual graph of how various components of the economy contributed to overall growth:

Housing fell back into the red, while non-residential structures eked out a small gain. Consumers continued to spend at a moderate pace (consumer spending grew at a 2.6% rate, thus adding 1.8 percentage points to growth). But the big stories were the continued boost from inventories, and the continued drag (in GDP-accounting terms) from imports.

The pessimistic take on inventories (see, for example, this tweet from Nouriel Roubini) is that the third quarter build up was unintentional, and thus is bearish for fourth quarter growth. The optimistic take, I suppose, is that maybe businesses see stronger demand ahead. But that feels rather, er, speculative.

For my usual set of caveats about the import figures (and, therefore, all of these figures), see my last post on the GDP numbers.

5 thoughts on “Another Tepid Quarter for GDP”

  1. Your graph repeats the fallacy of considering imports as a category comparable with the components of aggregate demand (government, consumption, and investment). If you move imports to the aggregate supply side of the identity, you find that changes in aggregate demand added up to 4.6 percentage points of GDP growth, which was met by 2.6 percentage points of imports and 2.0 percentage points of domestic production. Imports absorbed more than half of the demand increase, suggesting to me that a significant portion of the apparent stimulus from consumer spending may leak overseas. We need more government investment spending! (Mike Huckabee–with whom I don’t normally agree–made the same point in the primary debates.)

    1. Hi Cornelia — It’s exactly that issue that I was referring to in my final sentence (but I added a parenthetical to clarify more). In previous posts, I’ve noted that the contributions data suffer the same the import accounting issue that complicates the measurement of how much of the economy, from a production perspective, is accounted for by each major component. I’ve been wanting to create an imports-adjusted contributions measure, but I haven’t found an approach that makes me happy. There are approaches that can do rough justice for the levels (e.g., showing why, adjusting for imports, consumer spending is about 60% of the economy, not 70%). But I am hesitant to use those methods in determining quarterly contributions. Suggestions welcome. Thanks.

  2. Dr. Marron: I think the only way to allocate imports to the demand components that purchase them is by using input output analysis. It is only by I/O that one can distribute imports to both the purchasing demand components by industry and to the industries that use imports as inputs in their production process. The problem with I/O is that the extensive data and manipulation required makes it untimely for the most recent data available.

    Despite this short coming there is a positive aspect of the economy in the sense that the industry distribution of each demand component and of each industry production process changes slowly over time. Because of this fact one can use the most recent I/O table’s relationships with the updated data to approximate the impact of imports and arrive at plausible but timely relationships.

    I used the import to demand relationship for 2008 GDP data obtained from the the 2008 I/O Table. (I compared the trend for 1999, 2002, 2006 and 2008 and felt 2008 was the most appropriate.) Applying these import/demand relationships to the 2010 III GDP values and scaling to the 2010 III import value I derived an approximation GDP adjusted for imports. The resulting GDP distribution is: PCE .60; NR Inv .08; Res .02; Exp .12; and Gvt .18.

    When the 2010 I/O Table becomes available will these be the exact values obtained? I doubt it but they are certainly more plausible than the PCE .70; NR Inv .11; Res .02; Exp .13; Gvt .21 that appear in the press daily.

  3. I’m fond of the idea that Q3 inventories should, as a rule, rise, since Q4 retail sales are supposed to be about half of the annual retail sales.

    Absent a component comparison with previous Q2/Q3s, though, the betting line is that some people believed the Administration’s optimism of mid-Q1, ramped up in Q2, and saw some results in Q3–ones they didn’t want to see.

    Either it will be a very good Xmas season, or the betting line on a double-dip is currently set too low. I know which one I would like to see, but it’s not the way to bet.

  4. At least we are in an economic recovery, with lots of green shoots, and the powers that be have declared the recession is over, so its all happy days and everything is coming up roses from here on out.

    Is any properly educated economist aware that we are not in a normal cyclic recession yet?

    Foreclosures, foodstamps, unemployment, state budget deficits, map these and extrapolate the future, you really don’t need a weatherman to know which way the wind is blowing.

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