Q3 2013 real GDP had yet another blow out revision upward and is now 4.1%. Originally GDP was reported to be 2.8% for the third quarter, then it was revised to 3.6%. Now we have another revision showing a whopping large third quarter GDP. This is the largest quarterly economic growth since Q4 2011. Increased consumer spending was the cause for the large estimate jump as PCE was revised upward by 0.4 percentage points Changes in inventories accounted for 40% of Q3 GDP. Actual economic demand is now stronger in the third quarter than in Q2.
As a reminder, GDP is made up of: where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*. GDP in this overview, unless explicitly stated otherwise, refers to real GDP. Real GDP is in chained 2009 dollars.
The below table shows the Q3 revisions and percentage point spread between the major components of Q3 GDP. Investment shot way up and changes in private inventories is part of the investment component of GDP.
|Comparison of Q3 2013 Component Revisions|
Q3 2013 3rd Revision
Q3 2013 2nd Revision
This next table shows the percentage point spread breakdown from Q2 to the new Q3 GDP major components. Here we see consumer spending is down in comparison to Q2. Exports show less growth but imports also decreased.
|Comparison of Q3 2013 and Q2 2013 GDP Components|
Consumer spending, C in our GDP equation, now shows more growth than Q2. Most of consumer spending, was in goods, which added 1.03 percentage points to GDP growth contribution. Services was significantly revised and now adds 0.32 percentage points. The 2nd revision showed services only adding 0.02 percentage points to Q3 GDP. Health care alone was 0.31 percentage points of Q3 GDP. Below is a percentage change graph in real consumer spending going back to 2000.
Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon).
Imports and Exports, M & X added 0.14 percentage points to Q3 GDP as imports grew less than exports. The same scenario happened in Q2 but by volume via the Census, the trade deficit is still huge . We believe import and export pricing, since GDP is real valued, is why this is the 2nd quarter for trade not to negatively wallop the economy.
Government spending, G was +0.08 percentage points of Q3 GDP, or virtually unchanged between revisions. Below is the graph of government spending showing clearly the never ending budget cuts have been a real drag on economic growth.
Investment, I is made up of fixed investment and changes to private inventories. The change in private inventories alone gave a +1.67 percentage point contribution to Q3, basically unchanged from the previous GDP estimate. Changes in private inventories in Q2 were a +0.41 percentage point contribution to GDP. Below are the change in real private inventories and the next graph is the change in that value from the previous quarter. What goes up usually comes crashing down and note the 2009 time frame in the below graphs. Sudden inventory accumulation might mean businesses are not selling their wares well so stuff is sitting on the shelves. For now be aware there is an oversupply of petroleum lying around and we hope to examine inventories again to see what gives in terms of oversupply versus people not buying. Regardless of cause, a massive increase in non-farm inventories implies a much lower Q4 GDP.
Fixed investment is residential and nonresidential and shows some growth in the Q3 GDP report, about as much growth as it was in Q2. Overall, fixed investment contributed +0.89 percentage points to GDP. Nonresidential was revised significantly up, 0.42 to 0.58 percentage points.
Part of fixed investment is Residential fixed investment. Residential was revised down, from +0.38 to +0.31 percentage points to Q3 GDP. One can see the housing bubble collapse in the below graph and also how there is no meteoric recovery in terms of economic growth, but a modest one, for the last three quarters, in spite of all of the housing hype talk. Still, better than negative, but not the massive growth engine implied by the housing market hype machine.
Nominal GDP: In current dollars, not adjusted for prices, of the U.S. output,was $16,912.9 billion, a 6.2% annualized increase from Q2. In Q2, current dollar GDP increased 3.1%. That's double the growth.
Real final sales of domestic product is GDP - inventories change. This figures gives a feel for real demand in the economy. This is because while private inventories represent economic activity, the stuff is sitting on the shelf, it's not demanded or sold . Real final sales increased 2.5%, revised upward from 1.9%, for Q3. Q2 real final sales were 2.1%. This means, in spite of the massive private inventory accumulation, the economy really did pick up some in Q3, all due to consumer spending.
Gross domestic purchases are what U.S. consumers bought no matter whether it was made in Ohio or China.   ; It's defined as GDP plus imports and minus exports or using our above equation: where P = Real gross domestic purchases. Real gross domestic purchases increased 3.9%, revised up from 3.4%, in Q3. Q2 was 2.5%. Exports are subtracted off because they are outta here, you can't buy 'em, but imports, as well a know all too well, are available for purchase at your local Walmart. When gross domestic purchases exceed GDP, that's actually bad news, it means America is buying imports instead of goods made domestically. Considering how inventories saved the GDP day for Q3, a 3.9% increase in gross domestic purchases isn't great news. All hail Amazon, Apple and Walmart as they love to manufacture and import from China. Just in case you are reading this, Motorola is manufacturing Android phones in the United States, thanks Google and Walmart recently announced initiatives to sell more U.S. made products.
GNP - Gross National Product: Real gross national product, GNP, is the goods and services produced by the labor and property supplied by U.S. residents.
GNP = GDP + (Income receipts from the rest of the world) - (Income payments to the rest of the world)
Real GNP increased 4.4% for Q3. In Q2 GNP increased 2.7%. This is no surprise as the revision scaled well against the GDP revision. GNP includes, whereas GDP excludes, net income from the rest of the world. GNP increases beyond GDP if Americans made out like bandits from foreign investments more than foreigners cashed in on investments within the U.S. borders. The fact GNP is more than GDP implies a lot of super rich and Wall Street types made beaucoup bucks abroad.
GDI - Gross Domestic Income: Gross Domestic Income is all income from within the borders of a nation and should normally equal GDP. GDI is wages, profits & taxes minus subsidies. Real GDI was significantly revised and increased 1.8% vs. the originally reported 1.4% in Q3. Q2 GDI was a 3.2% increase. The BEA says GDI measures the economic output as the costs incurred as well as incomes earned in the production of GDP. The BEA also states GDI can have statistical discrepancy over short time periods. Still GDI is so off from GDP, this cannot be good news for most Americans in terms of jobs, wages and labor.
Below are the revised percentage changes of Q3 2013 GDP components, from Q2. There is a difference between percentage change and percentage point change. Point change adds up to the total GDP percentage change and is reported above. The below is the individual quarterly percentage change, against themselves, of each component which makes up overall GDP. Additionally these changes are seasonally adjusted and reported by the BEA in annualized format.
Q3 2013 GDP Component Percentage Change
|Component||Percentage Change from Q2|
Other overviews on gross domestic product can be found here, including more in depth Q3 previous estimate overviews.