Friday, October 29, 2010

USA Q3 GDP Advance Estimate +2.0% (Charts) *Positive contribution from consumer spending*


USA Economy: "positive contributions from personal consumption expenditures (PCE)"

USA Q3 GDP Advance Estimate +2.0%

The Bureau of Economic Analysis released the Advance Estimate of 2010 Q3 GDP which was +2.0%, for  a total GDP of $14.73 trillion. 2010 Q2 GDP was +1.7%, so the preliminary Q3 is a small improvement, but below the Q1 GDP of +3.7% and well below the 2009 Q4 GDP of +5.0%.

A +3.0% annualized GDP growth rate is generally accepted as the minimum necessary to generate jobs  growth. Therefore, the USA is growing at approximately 2/3 of the rate necessary to bring down the unemployment rate. The Big Question is where is the USA economy headed? Three scenarios are being much discussed: 1) a double dip recession whereby the GDP will turn negative, 2) the economy will continue this "bottom bouncing" with very slow growth thereby continuing a high unemployment rate (i.e., less than +3.0% growth), or 3) the bottom is in and GDP growth will accelerate, apparently slowly, and happy days will be here again.

As one economist noted, it was as if the USA economy hit an invisible wall by June 2010. Q1 GDP per the Bureau of Economic Analysis was +3.7% which was enough to create jobs and reduce the unemployment rate. The Q2 GDP was +1.7% and jobs were not created. Of the three scenarios mentioned in the previous paragraph, the first two (double dip recession or bottom bouncing) seem the most likely onwards into 2011.

USA GDP by Quarter (Chart) The chart below is the annualized percentage change of the GDP from the preceding quarter, the most common GDP measure. As can be seen, there was a negative dip into the Great Recession beginning 2008 Q1, a rebound peaking with the 2009 Q4, a downward trend in 2010 Q1 and Q2. The USA economy appeared to be at a crossroads in Q2: a continuing downwards trend towards zero growth or a bounce upwards from there? The Q3 +2.0% is a small bounce upwards. The chart covers the last 23 quarters (5+ years) of USA GDP as reported by BEA from 2005 Q1 through 2010 Q3.

The moving 4-quarter average (1 year) is +3.10% which is approximately a break-even economy on jobs, perhaps creating a small net increase in jobs - but is not robust. The 23-quarter average is +1.20% per quarter, which is a stalled economy, a flat economy that is not producing jobs and has an increasing unemployment rate. However, the current +2.0% is above this average.

USA GDP by Quarter (Chart) The chart below is the GDP in total current dollars, seasonally adjusted at annual rate. As can be seen, the USA economy peaked in 2008 Q3, bottomed in 2009 Q1 and Q2, now has increased 5 consecutive quarters, and exceed the previous peak in 2010 Q2. The chart covers the last 23 quarters (5+ years) of USA GDP as reported by BEA from 2005 Q1 through 2010 Q3.

The Bureau of Economic Analysis Commentary on the 2010 Q3 GDP of +2.0% (Advance Estimate)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.7 percent.

The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The "second" estimate for the third quarter, based on more complete data, will be released on November 23, 2010.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, nonresidential fixed investment, federal government spending, and exports that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The small acceleration in real GDP in the third quarter primarily reflected a sharp deceleration in imports and accelerations in private inventory investment and in PCE that were partly offset by a downturn in residential fixed investment and decelerations in nonresidential fixed investment and in exports.

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