3Q2012 Gross Domestic Product: Second (Preliminary) Estimate

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The Bureau of Economic Analysis (BEA) estimated 3Q2012 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 2.7 percent, an upward revision of 0.65 percentage point from the previous 3Q estimate, and 1.4 percentage points higher than the current 2Q estimate. Personal consumption expenditures (PCE), private domestic investment (PDI), government consumption expenditures (GCE) and net exports (NetX) contributed to 3Q growth, in that order.
 

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Consumer Metrics Institute (CMI) provided considerable commentary about the GDP report, some of which is reproduced below:

This report's headline number substantially misrepresents the state of the domestic economy, particularly the consumer portion of that economy. Removing the impact of the federal spending surge, growing inventories and exports [eliminates] nearly two-thirds of the apparent growth. If that remaining growth is then deflated using BLS inflation data, the consumer portion of the economy is actually shrinking at an annualized rate in excess of -1.0 percent.

Recapping the issues that merit caution moving forward:

* About 27 percent of the headline growth rate came from a $31 billion surge in federal spending, probably from advance contracting in anticipation of the "fiscal cliff" (and/or a conscious effort to provide a purely executive "stealth stimulus" to the economy).

* Inventories are once again reported to be growing, with 29 percent of the headline growth rate coming from such growth. Over time inventory growth is a nearly zero-sum game, and that apparent growth will need to be paid back in coming quarters.

* The accelerating contraction of per-capita disposable income means that households are under sustained pressure. Any growth in consumer spending is not coming from fatter paychecks -- it is coming instead from other sources, including refinancing, strategic defaults, reduced personal savings (which shrank by $24.4 billion during the quarter) and increased student loans.

We agree with CMI that “We would like to think that the economy is indeed growing at nearly 3 percent -- which by all rights it should be nearly four years into a purported ‘recovery.’ Unfortunately, the underlying reality (especially for U.S. consumers and wage earners) seems to point in a different direction.”


The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.