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Q3 Growth Revised Down to 2%

Business Insider brings us some grim news about the economy, whose third-quarter condition has been downgraded from “meh” to “standard Obama malaise”:

A second reading of  Q3 GDP was shaved down dramatically to 2% on a seasonally adjusted annual basis. This comes from a prior reading of 2.5% GDP growth.

The GDP price index however held steady at 2.5%. Meanwhile, personal consumption was up 2.3%.

That was an awfully quick “shave.”  The 2.5% advance estimate was released less than four weeks ago.  GDP numbers are invariably revised after the initial release, but contrary to the impression you might be forming from the last few quarters, they don’t always go down.  It takes a while for the government to amass the staggering amount of data necessary to compute the final number.  Market demands and the insatiable appetite of the TV and Internet news cycle make it difficult to ask everyone to chill out for an extra couple of months while the Bureau of Economic Analysis tabulates the final score.

Business Insider’s analysis calls the initial third quarter estimate “optimistic,” given that Q2 growth was an anemic 1.3%.  They also deliver the wonderful news that “analysts are expecting an increase in the likelihood of a double dip recession” due to the Super Committee’s failure.  Happy Thanksgiving, America!

A drop from 2.5% to 2.0% is a huge adjustment, worth over $70 billion.  Why was the initial estimate so far off?  ZeroHedge explains:

So much for the miraculous inventory expansion. JPM’s Michael Feroli was spot on: the strategist who predicted a significantly below par revised Q3 GDP print of 2.0%, was right on the dot. Advance GDP dropped from 2.5% to 2.0%, missing expectations of an unchanged print. The impact was entirely due to Inventories detracting from growth, with the Private Inventory number declining from -1.08% to -1.55%.

And to those expecting a surge in Q4 GDP based on inventory restocking, which would be virtually all Wall Street economists who missed today’s number by 2 standard deviations, we have one thing to say: it ain’t happening. In fact, liquidations are coming first, fast and furious with Personal Consumption coming at 2.3%, and missing estimates. Needless to say futures, are not happy.

(Emphasis mine.)  Not to worry, the perpetually surprised analysts at Reuters assure us, as they relay the latest “unexpected” economic gloom.  Now we’re set up for a really awesome fourth quarter!

The revision was below economists’ expectations for a 2.5 percent growth pace. But the details of the G.D.P. report, especially data showing still-firm consumer spending and the first drop in businesses inventories since the fourth quarter of 2009, appeared to set the stage for a stronger economic performance this quarter.

Data so far suggest the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months.

Despite the downward revision, last quarter’s growth is still a step up from the April-June period’s 1.3 percent pace. Part of the pick-up in output during the last quarter reflected a reversal of factors that held back growth earlier in the year.

These reversed factors include higher gas prices and the Japanese tsunamis, which slowed down automobile production.  The official statement from the Commerce Department mentions another “positive contribution” that Reuters left out:

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

The acceleration in real GDP in the third quarter primarily reflected accelerations in PCE and in nonresidential fixed investment, a smaller decrease in state and local government spending, a deceleration in imports, and an acceleration in exports that were partly offset by a larger decrease in private inventory investment.

Which brings us to the final bit of unhappy news about our flat-lined economic growth: it’s actually much worse than the generally cited statistics would lead us to believe, because GDP calculation includes government spending.  Truckloads of money thrown around by federal, state, and local governments actually inflate the Gross Domestic Product, even though the government “produces” virtually nothing.  If America gets serious about reducing the size of government after the next election, we’ll be told that spending cuts will reduce GDP and increase unemployment – considerations that mean nothing when Big Government garbage like ObamaCare is being rammed down our throats.

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Written By

John Hayward began his blogging career as a guest writer at Hot Air under the pen name "Doctor Zero," producing a collection of essays entitled Doctor Zero: Year One. He is a great admirer of free-market thinkers such as Arthur Laffer, Milton Friedman, and Thomas Sowell. He writes both political and cultural commentary, including book and movie reviews. An avid fan of horror and fantasy fiction, he has produced an e-book collection of short horror stories entitled Persistent Dread. John is a former staff writer for Human Events. He is a regular guest on the Rusty Humphries radio show, and has appeared on numerous other local and national radio programs, including G. Gordon Liddy, BattleLine, and Dennis Miller.

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