Growth of real (inflation-adjusted) U.S. gross domestic product for the third quarter outpaced the consensus of analysts. The Commerce Department's Bureau of Economic Analysis
announced Thursday that, on a seasonally adjusted, annualized basis, real GDP grew 3.5 percent in the July-September period, a deceleration from the second quarter's 4.6 percent, but well ahead of the 3 percent that economists surveyed by Bloomberg and the
Wall Street Journal had forecast.
The growth made for the best two consecutive quarters since 2003 and the fourth out of the past five in which it has been 3 percent or better. It also confirmed that the first quarter's 2.1 percent contraction was an outlier heavily affected by fierce winter weather in some parts of the nation, something many close observers said was the case when that quarter's results were first announced six months ago. Inflation-adjusted GDP growth is up 2.3 percent over what it was a year ago.
The GDP figures seem to indicate a healthier economy than anything we've seen since 2007. But it's always worth remembering that GDP is a flawed gauge. Distribution of the benefits of growth has been skewed toward the top economic tier for decades, but this has worsened in the past few years. Sentier Research says the average (mean) real household income has fallen 2.9 percent to $54,045 since June 2009, the official end of the Great Recession.
Based on newly released figures from the Social Security Administration, average real pay for 2013 was $43,041—down $79 from the previous year, writes David Cay Johnston. Average pay fell $508 from the 2007 level. On an inflation-adjusted basis, median pay—half of Americans earn more, half earn less—increased $109 in 2013, to $28,031. That put it at $320 below the 2000 median. The starkness of income inequality is reflected in the gains by the one group in Social Security's 60 pay categories that did well: Americans making more than $50 million saw their average pay rise in 2013 by $12.8 million, to $111.7 million.
Thursday's is the first of three GDP estimates the Commerce Department announces each quarter. The first is always a much rougher estimate than the two which follow for a simple reason: Better data are available about each quarter as the months go by.
The GDP announcement is the last major economic statistic we'll see before the election next week. While the economy still has immense, chronic problems—in addition to pallid wage growth—Republican candidates hoping to boost their chances at the polls with a weak GDP number are out of luck.
The report's details showed growth to be decelerating but still relatively strong in most categories. Trade added 1.32 percent of the growth in GDP as imports slowed, much of which is attributable to reduced oil imports. Exports increased 7.8 percent in the third quarter compared with 11.1 percent in the second. Imports decreased 1.7 percent compared with an increase in the second quarter of 11.3 percent.
There's more analysis below the fold.
There was also an expansion of government spending at the federal, state and local levels where cuts have been dragging the economy down for several years. Inflation-adjusted consumer spending was up 1.8 percent in the third quarter, compared with 2.5 percent in the second. Nonresidential fixed investment rose 5.5 percent in the third quarter, compared with 9.7 percent in the second. Change in private inventories knocked 0.57 percentage point from the third-quarter GDP growth change after adding 1.42 percentage points in the second quarter.
Although personal income rose by $152.9 billion in the third quarter, that was down from the $223 billion in the second. The fall-off was attributed to "deceleration in wages and salaries, a downturn in farm proprietors’ income, a deceleration in personal dividend income, and a downturn in personal interest income," the Commerce Department said.
Many economists believe that recent measures, including growth in real GDP, indicate that the economy is finally taking off after alternately revving and sputtering since the official end of the Great Recession five years ago. They may be right. But similar predictions made every year since late 2009 have run aground.
The IMF has forecast that the U.S. economy will grow 2.2 percent in 2014. But the consensus of U.S. economists is that growth will run at 3 percent from now through 2015. Compared with the stagnation in the 18-eurozone nations and the sharp second-quarter contraction in Japan, 3 percent is robust. One question is how much impact the reduced growth in those other nations, as well as China, will have on the U.S. economy.
•••
To reiterate what should always be remembered when assessing growth in gross domestic product: Because of flaws in the way it measures economic activity, it is important to use the GDP in conjunction with other economic factors when measuring the economy's health. Robert F. Kennedy's assessment in 1968 is not obsolete:
"Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion a year, but that Gross National Product—if we judge the United States of America by that—that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the Gross National Product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans."
Inadequacies in the GDP gauge have spurred efforts to develop a better measure or supplements to it. These include France's
Commission on the Measurement of Economic Performance and Social Progress, Canada's
Genuine Progress Index (a version of which has recently been tried out in Maryland), the
Human Development Index and the
Gini coefficient.