Q3 2011 GDP 3rd Revision: 1.8%

Q3 GDP 2011 was revised down another 0.2 percentage points to 1.8%.. Consumer spending was revised significantly downward due to a large downward revision to medical expenditures. GDP was initially reported to be 2.5% for the third quarter, then revised to 2.0% on the second estimate report and now a measly 1.8% for the final, 3rd revision. Here is the original BEA GDP report.



Q3 GDP had a sharp decrease in personal consumption, an upward revision in private inventories, a large increase in reported imports, which subtracts from gross domestic product and a bump up in fixed investment. The government is fairly D.O.A. in adding to economic growth now.

As a reminder, GDP is made up of: Y=C+I+G+{\left(X-M\right)} where:
Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.


Below is the Q3 2011, third revision, breakdown of GDP by percentage point contributions. Without final rounding, Q3 GDP was 1.82%.

  • C = +1.24
  • I  = +0.17
  • G = –0.02
  • X = +0.64
  • M = –0.21

Here is the Q3 2011, second revision, breakdown of GDP by percentage point contributions. Without final rounding, Q3 GDP was 2.00%.

  • C = +1.63
  • I  = –0.10
  • G = –0.02
  • X = +0.59
  • M = –0.09

Below are the percentage point differences, or spread between the Q3 3rd revision and Q3 2nd revision GDP report components, by percent point contribution. The quarterly change in private inventories was revised up significantly, from a -1.55 to –1.35 percentage points. The change in private inventories revision alone added +0.20 percentage points to the 1.82% Q3 GDP reported in the 3rd revision.

  • C = -0.39
  • I = +0.27
  • G =  0.00
  • X = +0.05
  • M = -0.12

Below the the St. Louis FRED graph for C of the above GDP equation, or real personal consumption expenditures, percentage change . As we can see from the above, PCE, or C in the above percentage point contribution, is the main reason for lower GDP growth in Q3.



Below is the breakdown in C or real PCE annualized percentage quarterly change. The third quarter PCE percentage point breakdown was a -0.43 downward revision from +1.33 to a +0.90 percentage point contribution in services. PCE goods was also revised up by +0.03 percentage points, from +0.30 to +0.33 with durable goods being revised up by +0.01 percentage points from the 2nd revision, from +0.41 to +0.42 of the +1.8 GDP. Notice when times are tough, durable goods (bright red) consumption drops. Where people spent their money in Q3 was personal household expenditures.

Personal household expenditures, which is part of services, was revised significantly down, from +1.32 to +0.73 percentage point contribution to GDP. An almost bizarre revision was in health care expenditures. It's 3rd quarter GDP contribution is now –0.07 percentage points, whereas the 2nd revision Health care expenditures was +0.61 percentage points of Q3 GDP. What happens is the BEA has to do by proxy approximations of some expenditures due to raw data lag. Medical expenditures are from the quarterly services survey and are reported revenues from Hospitals, Medical facilities and was not available until this 3rd GDP revision. These medical expenditures should be actual collected gross revenues, not debt outstanding. It's not clear what happened but one must wonder if more and more people simply cannot pay their medical bills to have such a dramatic revision. That said, PCE is often revised as receipts and reports are collected and there is quite a bit of raw data lag and one of the reasons quarterly GDP is issued in a three revision series. Below is PCE with the breakdown of goods versus services.


PCE breakdown


Changes in private inventories subtracted –1.35 percentage points from Q3 2011 GDP. Last quarter changes in private inventories contributed a –0.28 percentage point change. The change in private inventories point contribution reduced Q3 GDP by 72.2%. Companies reduce inventories when they believe an economic slowdown will happen.



Below are real final sales of domestic product, or GDP - inventories change. This gives a better feel for real demand in the economy. This is also a downward revision from 3.6% to 3.2%. Q2 real demand was 1.6%. While this is a downward revision, it's still an improvement from Q2.



Below are net exports, or the trade deficit, in real chained dollars, for Q3 2011. The Q3 3rd revision gave a -0.07 percentage point contribution drag to Q3 GDP, mainly due to the increase in services imports.



The below graph shows real imports vs. exports. Exports increased, 4.7%, revised up from 4.3% in comparison to last quarter's 3.6% for Q2. Q3 imports increased 1.2%, revised significantly up from the 0.5% change reported in the advance report. Q2 was a 1.4% increase in imports. It is the trade deficit that matters for GDP, although volume of trade implies a slower global economy. These numbers are almost always revised from the advance report as Census trade data comes in from customs.



Below are the percentage changes of Q3 2011 GDP components in comparison to Q2, along with the 2nd GDP revision reported quarterly percent changes. Realize 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.

  • C = +1.7%, revised down +2.3%
  • I = +1.3%, revised up from –0.9%%
  • G =  –0.01%, no change from 2nd revision report
  • X = +4.7%, revised up from +4.3%
  • M = +1.2% revised down from +0.5%

The BEA's comparisons in percentage change breakdown of 2nd quarter GDP components are below. Changes to private inventories is a component of I.

C: Real personal consumption expenditures increased 1.7 percent in the third quarter, compared with an increase of 0.7 percent in the second. Durable goods increased 5.7 percent, in contrast to a decrease of 5.3 percent. Nondurable goods decreased 0.5 percent, in contrast to an increase of 0.2 percent. Services increased 1.9 percent, the same increase as in the second.

I: Real nonresidential fixed investment increased 15.7 percent, compared with an increase of 10.3 percent. Nonresidential structures increased 14.4 per cent, compared with an increase of 22.6 percent. Equipment and software increased 16.2 percent, compared with an increase of 6.2 percent. Real residential fixed investment increased 1.3 percent, compared with an increase of 4.2 percent.

The change in real private inventories subtracted 1.35 percentage poi nts from the third-quarter change in real GDP, after subtracting 0.28 percentage point from the second-quarter change. Private businesses decreased inventories $2.0 billion in the third quarter, following increases of $39.1 billion in the second quarter and $49.1 billion in the first.

X & M: Real exports of goods and services increased 4.7 percent in the third quarter, compared with an increase of 3.6 percent in the second. Real imports of goods and services increased 1.2 percent, compared with an increase of 1.4 percent.

G: Real federal government consumption expenditures and gross investment increased 2.1 percent in the third quarter, compared with an increase of 1.9 percent in the second. National defense increased 5.0 percent, compared with an increase of 7.0 per cent. Nondefense decreased 3.8 percent, compared with a decrease of 7.6 percent. Real state and local government consumption expenditures and gross
investment decreased 1.6 percent, compared with a decrease of 2.8 percent.

Motor Vehicles was revised down, added +0.12 instead of +0.18 percentage points reported in the 2nd GDP revision, to Q3 real GDP while computer final sales added +0.22 percentage point changes, not revised. This is different from personal consumption, or C auto & parts. Motor vehicles, computers are bought as investment, as fleets, in bulk, by the government and so forth.

Residential fixed investment was revised down, from +0.04 to +0.03 percentage points to Q3 GDP, after adding a paltry +0.09 percentage points in Q2. In other words, residential fixed investment is D.O.A.. Below is the raw totals on residential investment. If one could ever see the housing bubble and then it's collapse in terms of economic contributions, the below graph is it.



Private, or not from the government, nonresidential fixed investment was revised up, from a 1.45 percentage point contribution to Q3 GDP to 1.49. Equipment and Software was another revision, this time up, from 1.08 to 1.12 percent point contribution. Equipment & software represents a 16.2% percentage change from Q2 to Q3.



Since the GDP report is in real chained 2005 dollars, and the price index for what U.S. consumers pay was revised upward 0.1 percentage point to 2.0%. The core price index, or minus food and energy, increased 1.8%. In other words, slightly more inflation, less real value in comparison to the 2nd revision, but dramatically less inflation than the previous quarter. The Q2 price index was 2.7%. The price index for GDP was 2.6. There are a host of price indexes per GDP component category and are listed in table 4 of the GDP report.

In current dollars, not adjusted for prices, GDP, or the U.S. output, is $15.1761 trillion, a downward revision of $4.8 billion and an increase of 1.09%, or $163.3 billion from Q2, revised down from 1.12% change between quarters. These percentages are not annualized although nominal GDP is. The annualized percentage change from Q2 was 4.4%. The Q1 to Q2 annualized percentage change for nominal GDP was 4.0%. Applying the price indexes, or chained, real 2005 dollars, real Q3 GDP was $13.3316 trillion.

Here are the overview for the Q3 2011 GDP, 2nd revision report, unrevised.

Q2 2011 GDP remained the same at 1.3%.

* In Table 2, the BEA reports GDP contribution components with their equation sign. If durable goods for example, decreased over the quarter or year, it is reported as a negative number. Imports, from the GDP equation, are already a negative for that is not something produced domestically. A negative sign implies imports increased for the time period and a + sign means the change in imports decreased. Or, from the GDP equation: X -(-M) = X + M. Confusing but bottom line exports add to economic growth, imports subtract.

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