Third-Quarter GDP Revised Upward Again - December 20, 2012
The Department of Commerce revised upward its estimate of third-quarter gross domestic product growth this morning, with that metric showing an advance of 3.1%. That is the second and final revision to the quarter and it marked the second upward change in this closely watched series. The prior estimate, issued in late November, had shown a gain of 2.7% for the period. Expectations had been that this figure would have been up by 2.8%.
However, this latest gain, and the obvious strengthening in the economy over the summer, may not be sustained in the fast-ending quarter, if current indications prove even close to the mark. Specifically, there was the significant loss of business resulting from the ravages of Hurricane Sandy in late October and early November. Then, there is the continuing uncertainty evolving from the budget standoff in Washington. That stalemate is delaying spending plans by both consumers and businesses across the country. As we go out with this report, the budget talks are ongoing, but so is the harsh rhetoric, suggesting that a deal is not yet a sure thing, although we sense one will take place by yearend or very shortly thereafter.
Meanwhile, the better third-quarter GDP showing largely reflected a stronger pickup in consumer spending and a decline in imports. GDP is calculated by taking total domestic output, adding in exports, and subtracting imported goods and services. Consequently, the pullback in imports aided economic activity during the latest period.
Overall, GDP growth more than doubled the second-quarter increase of 1.3%. However, two of the other factors adding to growth in the quarter could well prove to be short-lived affairs, notably the buildup in inventory investment and the gains in federal government spending. In the current period, those excess inventory stockpiles are likely to be drawn down somewhat, especially with the budget talks going virtually nowhere at present, and warnings of an economic setback in early 2013 in the unlikely event this stalemate were to linger well into 2013, becoming more prevalent.
As to the final period of this year, current expectations are that growth will approximate 1.0% to 1.5%--or less than half the third-quarter rate. That would clearly be more like the second three months of this year than the latest quarter. Then, assuming a deal can get done in Washington in short order, growth would likely step up into the 2% range, on average, in 2013.
Overall, then, this was a solid report, but concerns about sustainability obviously temper our optimism and enthusiasm about the data.