What You Really Need To Know About Today’s GDP News


Louisiana Commercial RealtyYou already should know that 3rd quarter GDP increased 2% compared to 2nd quarter’s 1.3%, but what you really need to know is why and what is driving the economy. It is really the federal government-just in time for the election.

The acceleration in real Gross Domestic Product in the third quarter primarily reflected the following:

  1. an upturn in federal government spending,
  2. a downturn in imports,
  3. an acceleration in consumer spending,
  4. a smaller decrease in private inventory investment,
  5. an acceleration in residential fixed investment,
  6. a smaller decrease in state and local government spending
  7. downturns in exports and in nonresidential fixed investment.

The real drivers are government and defense spending:

  1. Federal government consumption expenditures and gross investment increased 9.6 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second.
  2. National defense increased 13.0 percent, in contrast to a decrease of 0.2 percent.
  3. Durable goods increased 8.5 percent, in contrast to a decrease of 0.2 percent.

Just to be clear, today’s release is the first of three estimates of GDP and compares the 3rd quarter 2012 to the 2nd quarter 2012. For the next 3 months, an updated release will bring new figures subject to change since the standard deviation over the last 20 years from first to last revision has been 1.0 percent. This means the estimate of a 2 percent GDP growth, if held up for the entire yea,r could be as much as 50 percent off if there is a 1 percent standard deviation.

gdp 3rd quarter 2012, real vs. dollars

gdp 3rd quarter 2012, real vs. dollars

These numbers are for “real” GDP which is different from current dollar GDP, and they are seasonally adjusted and expressed in percent. Quantities, or “real” measures, and prices are expressed as index numbers with the reference year — at present, the year 2005 — equal to 100. Current-dollar GDP is a measure of the market value of goods, services, and structures produced in the economy in a particular period. Current-dollar GDP — the market value of the nation’s output of goods and services — increased 5.0 percent, or $190.1 billion, in the third quarter to a level of $15,775.7 billion.  In the second quarter, current-dollar GDP increased 2.8 percent, or $107.3 billion.

Of the 2 percent change in 3rd quarter GDP, .72 percent came from Federal spending, which means Federal spending accounted for 36 percent of the growth. Federal spending incurred a tremendous turnaround since in the 2nd quarter it amounted to negative .02 percent of GDP growth, in the 1st quarter amounted to negative .34 percent of GDP, in the 4th quarter 2011 qmounted to negative .34 percent of GDP and in the 3rd quarter 2011 amounted to negative .36 of GDP.


chart federal spending contribution to GDP Q3 2012

chart federal spending contribution to GDP Q3 2012

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US Department of Commerce

Bureau of Economic Analysis