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 2.2 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.
The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.8 percent (see "Revisions" on page 3).
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 that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in exports, in private inventory investment, and in residential fixed investment and a smaller decrease in nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and local government spending, and a deceleration in federal government spending.
The original release put this at an increase of 3.5%. This was followed by a lowered revision of 2.8% last month. However, GDP decreased at a .7% rate in the second quarter. In addition, this was the first increase in the last 5 quarters. That still makes this good news.
There was much hay made of the fact that of the 2.2%, 1.45% came from motor vehicle output, and especially that this was from the cash for clunkers program. In response, consider these points. First, a large number of the people complaining about that figure are the same people who argued for the first stimulus and in some cases are arguing for a second stimulus. In other words -- there people will complain no matter what. Secondly, government spending accounts for 20% of GDP growth throughout the economic cycle. Finally, it is standard for the government to use programs to bring an economy out of a recession. A favorite method is increasing the upfront depreciation deduction. However, there is nothing wrong with using standard demand simulating measures as well. So, some type of government programs are standard for getting an economy out of a recession.
There were some good numbers within the report. Personal consumption expenditures increased 2.8%. While durable goods purchases increased 20.4%, non-durable goods purchases increased 1.5% and services purchases increased .8%. Also note that durable goods are by far the smallest component of PCEs, coming in at 10.37% while services account for 67.5%.
Residential investment increased 18.9%. This is very important as it indicates that real estate is no longer a drag on economic growth. In addition, equipment and software investment increased 1.5%, indicating that businesses are tooling up. This helped gross private domestic ivestment increase 5% for the quarter.
In addition, exports increased 17.8% indicating our trading partners are buying things again. However, imports increased 21.3% so the trade gap widened.
Inventory adjustments added .69 to the overall 2.2%. This fits in with my overall thoughts on how the US economy will recover:
Inventories have dropped like a stone for roughly a year. At some point these will need to be replaced. While there is no indication the bottom has occurred yet at some point it will. And when that happens, another item of growth will be added to the equation.
Short version - the recession is over.
The only people who think this is a big deal of some sort, are the same people who never saw positive GDP coming in the first place. Had the number been originally reported in October as +2.2% and remained there, I would have considered it a good report. Instead, we originally got a surprise "great" number, and then ultimately the final number wound up close to the original forecasts. It remains a great turnaround from earlier in the year, when most observers thought we were falling into a bottomless abyss.