Data
Watch
Real GDP
growth in Q3 was revised down slightly to a 1.8% annual rate
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/22/2011
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/22/2011
The
largest downward revision versus last month’s estimate of Q3 real GDP
growth was for consumer spending. Inventories were revised up
slightly.
The
largest positive contributions to the real GDP growth rate in Q3 were from
business investment and consumer spending. The weakest component of real
GDP was inventories.
The
GDP price index was revised to a 2.6% annualized rate of change from a prior
estimate of 2.5%. Nominal GDP growth – real GDP plus inflation – was
revised to a 4.4% annual rate in Q3 versus a prior estimate of
4.6%. Nominal GDP is up 3.9% versus a year ago.
Implications: Forget about the
GDP report for a moment – it told us nothing new about the economy. The
big news this morning was that initial claims for unemployment benefits fell
4,000 to 364,000, the second week below 370,000 and the lowest level since
April 2008, well before the collapse of Lehman Brothers. Continuing
claims for regular state benefits declined 79,000 to 3.55 million, the lowest
since September 2008. Based on these figures, it looks like a strong
month for payroll growth in December. Some analysts have tried to dismiss
the big drop in claims, focusing instead on raw data (before seasonal
adjustment) which were 418,000 last week. But unadjusted claims always
rise at this time of year. We find it interesting that the unrelenting
pessimists ignored the raw data back in August/September when unadjusted claims
fell as low as 329,000. On GDP, there is not much “news” in today’s
report, showing the economy expanded at a 1.8% annual rate in the third
quarter, which ended three months ago. Real GDP growth was very close to
what the consensus expected. Corporate profits were revised down slightly
for Q3, but still stood at a record high in Q3, and should increase again in
Q4. Adding up both real growth and inflation, nominal GDP grew 4.4% at an
annual rate in Q3, down slightly from the prior estimate of 4.6%. Nominal
GDP is up 3.9% from a year ago, which means that a zero percent federal funds
rate is too loose. The economy does not need a third round of
quantitative easing, nor does it need more temporary fiscal “stimulus.”
In fact, the Fed should be raising interest rates while Congress cuts
spending. Using data released so far, our forecast for Q4 real GDP is
3.5-4%, while the consensus stands at 2.8%.
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