Q3 GDP Research Notes

by Jim Baird on November 29, 2012

U.S. third quarter GDP revised higher, but slightly below expectations

The second estimate of GDP growth for the third quarter showed the economy grew at a 2.7% annualized pace, a meaningful improvement over the original estimate of 2.0%.

Personal consumption was revised downward, as consumer spending remains somewhat soggy.  Given the lack of income growth, households are finding it difficult to spend at a more robust pace.

Evidence continues to mount that the recovery in housing continues to build.  Residential investment soared over 14 percent during the quarter, building on solid numbers from the first half of the year.  While new construction remains a fraction of where it was during the housing boom, growth has now been solid for the past four quarters, suggesting that the market has turned the corner.

Today’s report also suggested that exports grew modestly in the third quarter.  While the 1.1% rate was the slowest pace of export growth since the recovery began in 2009, it did represent an improvement over the previously reported contraction of 1.6%.  Still, the sharp slowdown in the global economy is clearly being felt by U.S. exporters as well.

The economy was also bolstered by a pickup in government spending.  The pace of spending cuts at the state and local level has been a drag for the past three years, but the impact continues to diminish, even as federal spending soared by 9.5% during the quarter.

On a gloomier note, estimates of third quarter business investment were cut further.  Corporate America clearly remains wary of the outlook for the economy and have begun cutting back on capital expenditures.  Even as consumer confidence continues to advance, business confidence has been slipping. 

Moving forward, fourth quarter growth will likely be slower as Superstorm Sandy impaired activity along the east coast, and the uncertainty created by the fast approaching fiscal cliff is already negatively impacting business investment.  Even if policymakers reach a deal to avoid the full impact of the cliff, it appears likely that consumers will feel some pinch in the new year, with higher payroll taxes looking likely to hit most households.  With consumer spending growth as soft as it is and income growth limited at best, even a modest decrease in paychecks will be noticed.

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US budget deal hopes give markets a boost (Associated Press)


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