Economy Booms In Third Quarter
Kurt Brouwer November 29th, 2007
When we hear tales of the looming recession in the nightly news, it is hard to grasp that the actual performance of the economy is very impressive. In fact, the economy boomed in the third quarter. No exaggeration. It boomed, as this report from the U.S. Bureau of Economic Analysis (BEA) indicates:
‘..Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 4.9 percent in the third quarter of 2007, according to preliminary estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.8 percent.
The GDP estimates released today are based on more complete source data than were available for the advance estimates issued last month. In the advance estimates, the increase in real GDP was 3.9 percent…
…The increase in real GDP in the third quarter primarily reflected positive contributions from exports, personal consumption expenditures (PCE), private inventory investment, equipment and software, federal government spending, nonresidential structures, and state and local government spending that were partly offset by a negative contribution from residential fixed investment…’
I have to admit that the revision surprised me. The BEA recently estimated third quarter real (after inflation) GDP growth to be 3.9%, see Economy Booms Despite Credit Crunch. At the tail end of that post I wrote this (and boy was I wrong):
‘…Update: I suspect the 3.9% growth rate will get revised downward fairly soon. This statistic — real GDP growth — represents growth after taking into account inflation for a given time period. In this case, I believe the value used for inflation (less than 1%) was too low. If they used a more reasonable number, the real growth rate would be reduced, perhaps down to 3%. Having said that, I still believe that, for the difficult quarter we just completed, 3% growth is a solid achievement.’
If you consider the environment we have been in — the subprime lending mess, the credit crunch, bank write-offs, slumping financial services companies, soaring oil prices and the falling dollar — quarterly growth of 3.9% would have been impressive. Yet, we now see that growth was far stronger, in fact, we had one of the biggest quarters in years. I am amazed.
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