U.S. “real” (i.e., inflation-adjusted) gross domestic product (GDP) increased 2.0% seasonally adjusted and annualized in this year’s third quarter, according to the Bureau of Economic Analysis.
The increases earlier in 2012 were +2.0% in the first quarter and +1.3% in the second. The return to a slightly faster rate of growth in Q3 versus Q2 was a pleasant surprise.
It would have been even quicker had there not been the drought in the Midwest that lowered farm inventories. The drop in crop yields lowered the GDP growth rate by 0.4%.
Personal consumption expenditures (PCE) in Q3 advanced at the same rate as overall GDP, +2.0%. PCE is the first thing to look at when considering GDP growth. That’s because it makes up slightly more than 70% of total output.
The goods component of PCE advanced faster than services, +4.4% versus +0.8%. Services are doing okay, though. The number of jobs in the services sector is higher now than it was before the recession. The same can’t be said for the grand-total employment level.
Given how strong motor vehicle sales have been this year, it was to be expected that spending on durable goods (+8.5%) would perform better than non-durables (+2.4%).
Consumers are doing their bit to help the economy. Not so long ago, this wasn’t a given. Two major obstacles stood in the way, weak labor markets and high levels of personal debt.
With respect to employment, the news has turned more upbeat. The jobless rate in September fell back under 8.0% for the first time since January 2009.
The month-over-month employment increases in September and August were +114,000 and +142,000. It should also be noted that initial jobless claims have dropped significantly in two of the last three weeks.
On the debt side, many Americans were laboring under more than just large mortgages at the onset of the recession. Credit cards and borrowing limits were maxed out across the board.
Over the past couple of years, individuals and families have greatly reduced their credit obligations. This process has been so successful that not only are retail sales strong once again, but the savings rate has moved back into the 3.0% to 4.0% range from a level near 0.0%.
As for the GDP line items of most interest to our industry, investment in residential structures forged ahead 14.4% in the latest quarter, while spending on non-residential structures fell back 4.4%.
The improvement in the housing sector – and especially in new home starts – carries benefits across the broader economy. It provides an incentive for people to spend money on a wide spectrum of household products.
Foreign trade was a drag on the economy in the latest quarter, with exports (-1.6%) down more than imports (-0.2%). The weaker global scene has cut into U.S. sales of capital equipment. The emerging world has scaled back some of its ambitious infrastructure plans.
The 2.0% rate of growth in the third quarter is just about what most analysts have been expecting for the U.S. economy for the whole year. It will probably be the fastest growth rate in the industrialized world.
Canada is being held back by disappointing commodity markets. Europe is still struggling to break free from its debt problems. Japan will turn in a satisfactory growth rate, but it will arise out of massive spending to fix last year’s tsunami damage.
The U.S. is in a position to pull the world out of its economic malaise – if matters are left to evolve organically. Consumer spending, housing and employment are all on the upswing.
The biggest danger to the outlook lies in political interference. A too-zealous pursuit of austerity in the form of spending cuts and/or tax increases may bring growth to a halt.
This is what much of the Presidential election campaign was about. Messieurs Obama and Romney have quite different opinions concerning which economic policies are appropriate going forward.
We have to leave it to voters on November 6th to sort out who they think is less likely to make the wrong course adjustment.