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Wednesday, December 22, 2010

Q3 Real GDP Growth Revised Upward to 2.6% Annualized; Real Final Sales Down

Real GDP growth in the third quarter was revised upward to 2.6% annualized from the previously reported 2.5% growth rate. This was a faster pace of growth than in the second quarter, where GDP grew 1.7%. However, this pace is still only modest and not brisk enough to drive down unemployment. In comparison, real GDP grew at paces from 5 to 8% for multiple quarters following the deep recessions in the early 80s and mid 70s.

The upward revision was primarily due to an increase in inventory accumulation and to a lesser extent, an improvement in net-exports. However, most of this gain was offset by a downward revision to consumption. Consumption added 1.7 points to growth rather than the previously reported 2.0%.

Though total growth was slightly higher in this revision, the details of it are weaker. A greater amount of the growth picture over the quarter was due to inventory accumulation. Though this is still demand growth, the effects are temporary as it primarily reflects firms making short term inventory realignments. Real final sales growth, which removes inventories in order to get a measure of the underlying demand in the economy, was only 1.0%, compared to the previous 1.2%. This is quite modest. Moving forward, GDP growth will more closely follow the real sales trend as the inventory cycle comes to an end. Therefore, in order to start to drive down unemployment, real final sales growth will have to accelerate.

































































































annualized % changeQ3 2010PreviousQ2 2010Q1 2010Q4 2009Q3 2009
Real GDP2.62.51.73.75.01.6
% contribution to r. GDP
Consumption1.72.01.51.30.71.4
Fixed Investment0.20.22.10.4-0.10.1
    Residential-0.8-0.80.6-0.30.00.3
    Non-Residential0.91.01.50.7-0.1-0.1
Inventories1.61.30.82.62.81.1
Government0.80.80.8-0.3-0.30.3
Net Exports-1.7-1.8-3.5-0.31.9-1.4

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