Thursday, October 27, 2011

A Quick Look at Q3 GDP

I just wanted to take a quick look at Q3 2011 GDP, which I think is actually a bit better (the internals) than what the headline shows. The advance headline of up 2.5% was in line with expectations and is generally speaking a less than stellar number, but the breakdown may be a bit more promising.

First, private inventories subtracted a full 1.08 percent from the total (ie with inventory levels unchanged, we would have seen a 3.5% print on headline GDP). This decline in inventories is unlikely to persist (provided we stay out of recession) into the next few quarters. Second, the numbers for private investment are starting to heat up. Fixed private investment added 1.6 points to GDP and the change from the preceding quarter was up 13% for structures and 17% for equipment and software from Q2 (which was also positive). So while we may not be seeing job creation, it is hard to say that businesses are tentative about making investments now. Third, while I doubt that government is going to be adding much to GDP in the near future, we may be seeing the losses slow somewhat (a breakeven for this Q in total and only down .16 for state and local). Finally, after being a huge drag for what seems like ever, it looks as though residential investment as a component of GDP has finally bottomed, which should further stop the bleeding.

Now all we need is for some of that increased private investment to start leading to greater job creation numbers.