GDP Pushed Up — Yet Look Closer

Photograph by Andrew Harrer/Bloomberg

Shoppers at the Fair Oaks Mall in Fairfax, Virginia.

The latest figures on third-quarter economic growth are best described by a cliché: The devil is in the details.

Gross domestic product accelerated to a 2.7 percent annual rate, revised upward from a 2 percent pace previously reported by the Commerce Department and well above the 1.3 percent gain in the second quarter of 2012.

That sounds like an impressive performance — and would have been a widely noticed number before Nov. 6, when it turned out that a reported 2 percent growth in GDP was good enough for President Barack Obama’s re-election.

A closer look at the report shows consumer spending, the biggest part of the economy, was revised downward to a 1.4 percent pace, the slowest in more than a year. Moreover, a big chunk of the pickup in growth came from a stronger-than-projected buildup of inventories, which poses a potential headwind for this quarter.

Wage gains also were revised downward for the past two quarters, helping explain why American consumers may have restrained purchases and hardly encouraging for the outlook in coming months unless the labor market begins to show faster Among the other not-so-rosy details, business investment in equipment and software fell instead of being unchanged last quarter, the GDP revisions showed. And while exports expanded, the pace was the weakest in three years. That leaves housing as the one silver lining: growth in residential investment almost matched the previous estimate.

In short, the picture is much weaker once we get past the headline GDP number. Economists, in research notes today, echoed the sobering view. “Upgrade now, downgrade later,” wrote Credit Suisse’s Jonathan Basile, underscoring the risk of slower growth this quarter. Deutsche Bank Securities Inc.’s Joseph LaVorgna said he was “troubled by the mix,” and Daniel Silver at JPMorgan Chase & Co. noted there’s “not much to celebrate.”

 

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