3Q2011 Gross Domestic Product: Final Estimate

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The Bureau of Economic Analysis (BEA) estimated 3Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 1.8 percent, down from the advance and preliminary estimates of, respectively, 2.5 and 2.0 percent but up from 1.3 percent in 2Q. Personal consumption expenditures (PCE), net exports (NetX) and private domestic investment (PDI) – mainly nonresidential fixed investment – contributed to 3Q growth in that order, while government consumption expenditures (GCE) exerted a small “drag.”
 

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Consumer Metrics Institute wrapped up its coverage of the GDP report with these comments:

-- A headline number of 1.81 percent is disappointing given that we are now six quarters into a "recovery," when numbers closer to 4 percent should be expected.

-- Federal fiscal spending continued to sustain the headline number, with defense spending contributing more than a quarter of a percent. Any successful efforts to restrain the deficit will have direct and immediate impact on these numbers.

-- The contracting per-capita disposable income explains the public's mood, even if consumers are seemingly "self-medicating" their psyches through increased (and perhaps ill-considered) holiday spending.

-- When compared to earlier data for the same quarter, this set of revisions again tells us that the BEA has been chronically misreading the economy with an optimistic bias (best exemplified by the massive downward revisions to the numbers for the "Great Recession" this past July). If the Federal Reserve continues to believe that it can and should "engineer" the economy for happier outcomes, we hope that their tinkering is informed by better and more timely data than that provided by the BEA.
 

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The GDP revision strengthens the recession call made by Federal Reserve analyst Jeremy Nalewaik. Nalewaik’s analysis correlated the onset of recessions with a fall in the year-over-year change in gross domestic product (GDP) below 2 percent. Since 1947, the U.S. economy either was already or soon would be in recession each time the year-over-year change in GDP fell below 2 percent (the red dashed line in the figure above). The year-over-year GDP change now stands at 1.46 percent in 3Q.