3Q2013 Gross Domestic Product: Second (Preliminary) Estimate

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The Bureau of Economic Analysis (BEA) revised its estimate of 3Q2013 growth in real U.S. gross domestic product (GDP) to a seasonally adjusted and annualized rate of +3.6 percent. That rate was the fastest increase in 1½ years, and considerably higher than the “advance” estimate of 2.8 percent posted a month earlier. All four categories -- personal consumption expenditures (PCE), private domestic investment (PDI), net exports (NetX) and government consumption expenditures (GCE) made at least some contribution to 3Q growth. The headline rate exceeded expectations of 3.2 percent, but virtually all of the revised gain derived from the largest buildup of inventories since 1998. 

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The contribution from consumer expenditures for goods and services weakened in this revision. That consumers are not doing well was also confirmed by Consumer Metrics Institute (CMI) which pointed out that “the annualized growth rate for the real final sales of domestic product decreased again to 1.92% (down from 2.07% in the previous quarter). This is the BEA's ‘bottom line’ measurement of the economy -- which remains substantially weaker than the headline number because of the ongoing buildup of inventories.”

Inventory stockpiling is a zero-sum game, meaning the economy could slow (some analysts peg the 4Q growth rate at 1.6 percent) as those inventories are drawn down. “Businesses likely will cut back on investment in inventories in late 2013 and early 2014, weighing on near-term growth,” said Gus Faucher, senior economist at PNC Financial Services.

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.