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December 23, 2011

3Q GDP gets downward revision

The latest third-quarter real GDP estimate shows that economic growth was a little slower than previously thought, but NAFCU Chief Economist Tun Wai said there are also some encouraging signs that the recovery is strengthening.

The Bureau of Economic Analysis reported thatthird-quarter real GDP came in at 1.8 percent, a slight decline from the 2 percent figure that was reported previously. The latest numbers represented the third estimate on third-quarter real GDP from the bureau.

A key factor in the downward adjustment, noted Wai, was a reduction in estimated healthcare spending. "All being told," he said, "downward revisions to consumer spending, partially offset by an upward revision to private inventories, contributed to the government's revised take on third-quarter GDP."

The strongest contributors to third-quarter economic growth were fixed non-residential investments, which rose by 15.7 percent and contributed 1.49 percent to GDP, and consumer spending, which rose by 1.7 percent and contributed 1.24 percent to GDP. Net exports contributed 0.43 percent to GDP growth and residential investments added 0.03 percent to GDP growth.

On the flipside, the change in private inventories reduced GDP growth by 1.35 percent, while a slight drop in government spending reduced GDP growth by 0.02 percent.

The core personal consumption expenditures deflator, the Federal Reserve's preferred measure of inflation, decreased from 2.3 percent in the second quarter 2011 to 2.1 percent in the third quarter 2011.

Despite the downward revision, Wai said he is "cautiously optimistic" about the state of the economic recovery. "Unemployment claims continue to fall, while corporate profits and business investment remain strong," he said. "Final sales of domestic product, which measures demand for domestic goods and services, grew by the second-largest pace in four years."

Even as these developments signal that companies may hire more workers soon, a number of downside risks remain, the economist warned. "The most significant of these is the threat of a European financial crisis spilling over to U.S. markets. Barring that, we should see incremental improvements continue in the coming months."

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