Let's start with the basics:
The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
Here's an important point: yes, cash for clunkers was a big reason for the increase. But there were other contributors as well.
Real personal consumption expenditures increased 3.4 percent in the third quarter, in contrast to a decrease of 0.9 percent in the second. Durable goods increased 22.3 percent, in contrast to a decrease of 5.6 percent. The third-quarter increase largely reflected motor vehicle purchases under the Consumer
Assistance to Recycle and Save Act of 2009 (popularly called, “Cash for Clunkers” Program). Nondurable goods increased 2.0 percent in the third quarter, in contrast to a decrease of 1.9 percent in the second. Services increased 1.2 percent, compared with an increase of 0.2 percent
Yes the cash for clunkers program was a big goose. But notice it wasn't just durable goods that saw increases: non-durable goods and services also increased. And not by small amounts. Also note the durable goods purchases by consumers only comprise 12% of PCEs. Services are by far the biggest component of PCEs, coming in at 65.7%. And non-durable goods comprise 21.9% of purchases. That makes the 1.2% increase in services and 2% increase in non-durables very important. The increase was broad-based.
Real nonresidential fixed investment decreased 2.5 percent in the third quarter, compared with a decrease of 9.6 percent in the second. Nonresidential structures decreased 9.0 percent, compared with a decrease of 17.3 percent. Equipment and software increased 1.1 percent, in contrast to a decrease of 4.9 percent. Real residential fixed investment increased 23.4 percent, in contrast to a decrease of 23.3 percent.
This is more good news for two reasons.
1.) The rate of decline of non-residential fixed investment dropped at a smaller rate. We saw a slight increase in equipment and software investment.
and
2.) Residential investment increased at a strong rate. Now I'm guess that some of that increase is the result of coming off a low bottom. But not all.
Real exports of goods and services increased 14.7 percent in the third quarter, in contrast to a decrease of 4.1 percent in the second. Real imports of goods and services increased 16.4 percent, in contrast to a decrease of 14.7 percent.
While imports increased at a larger rate than exports, exports were still up 14%. That tells us that our trading partners are buying things -- meaning they are recovering. The increase in imports indicates we're recovering.
Simply put, this is a good report.
