Summary
On Tuesday, the Commerce Department released its second or "preliminary" estimate of third-quarter gross domestic product. According to the report, real GDP grew at a 3.9% rate during the September quarter, 0.2% faster than Commerce's initial or "advance" estimate of 3.7%, released on 10/29. As reported, the GDP inflation measures were highly "suspect."
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In its report of Tuesday, the Commerce Department indicated that third-quarter real GDP grew at an annual rate of 3.9%, slightly faster than the department's initial estimate of 3.7%, released on 10/29. Included in the regular reporting cycle will be a third or so-called "final" estimate, due out 12/22.
The numbers jumping off the page in Tuesday's release were the GDP inflation measures, with the implicit price deflators for GDP and for gross domestic purchases showing major declines from those reported for the second quarter.
For the third quarter, these measures were reported at respective annual rates of 1.3% and 1.8%, versus second-quarter results of 3.2% and 3.5%. It's important to remember there is virtually a one-for-one inverse relationship between the GDP implicit price deflator and real GDP. In other words, a given decline in reported inflation comes through as a similar increase in real gross domestic product.
During the June quarter, the price deflator rose at a 3.2% rate, up from the first quarter's 2.7% rate. It is difficult to accept a genuine third-quarter pullback in inflation of this magnitude, a decline of a large 1.9% from the second quarter.
The following table breaks out these trends over the last 11 quarters. Of particular interest regarding the most recent period is that it represents the second quarter in a row in which there was a meaningful drop in nominal (pre-inflation) growth. Moreover, the third quarter's reported decline in inflation accounted for far more than 100% of the increase in real growth between the second and third quarters.
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NOMINAL AND REAL GROSS DOMESTIC PRODUCT
(SAAR, 2000 Chained Dollars); RATIO OF REAL
TO NOMINAL; IMPLICIT PRICE DEFLATORS FOR
GDP AND FOR GROSS DOMESTIC PURCHASES
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Year Q1 Q2 Q3 Q4
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2004 Nominal 7.4% 6.1% 5.3% NA
Real 4.5% 2.8% 3.9% --
R/N 0.61 0.46 0.74 --
===========================================
GDP Def. 2.7% 3.2% 1.3% --
PCE Def. 3.4% 3.5% 1.8% --
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2003 Nominal 4.9% 5.3% 8.8% 5.7%
Real 1.9% 4.1% 7.4% 4.2%
R/N 0.39 0.77 0.84 0.74
===========================================
GDP Def. 2.9% 1.1% 1.3% 1.4%
PCE Def. 3.9% 0.4% 1.6% 1.2%
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2002 Nominal 4.4% 4.2% 3.9% 2.7%
Real 3.4% 2.4% 2.6% 0.7%
R/N 0.77 0.57 0.67 0.26
===========================================
GDP Def. 1.0% 1.8% 1.3% 2.0%
PCE Def. 0.8% 2.8% 1.4% 1.9%
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The Revised Third-Quarter Numbers
The three-month period ended September was the 12th consecutive quarter of reported real GDP expansion.
The preliminary estimate of growth at a 3.9% annual rate was slightly better than the consensus forecast, which was looking for a 3.7% rate.
In comparing preliminary third-quarter numbers with the Commerce Department's final estimate for this year's second quarter, real GDP was up $105 billion or about 0.976%. Add one, then raise this to the fourth power, and you get the rounded annual rate of change of 3.9%.
Versus 2003's third quarter, 3Q2004 real GDP rose $416.9 billion, or 4.0%. The respective numbers: 3Q2004 = $10889.7 billion; 3Q2003 = $10472.8 billion.
Three of the six primary GDP categories added to growth in the preliminary versus advance estimates of activity during the third quarter. In order of their dollar contribution, they were: (1) net exports (+$10.0 billion, by virtue of a reported narrowing in the deficit from $598.0 billion to $588.0 billion), (2) personal consumption expenditures (+$7.9 billion), and (3) nonresidential fixed investment (capital spending, +$3.6 billion).
The three primary categories subtracting from growth after revision, in order of their dollar contribution, were: (1) inventory change (minus $12.2 billion), (2) residential fixed investment (housing, minus $1.8 billion), and (3) government spending (minus $0.7 billion).
The following table breaks out in greater detail some of the numbers discussed above.
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PRELIMINARY ESTIMATE OF THIRD-QUARTER 2004
REAL GROSS DOMESTIC PRODUCT (Released
11/30 -- Billions of 2000 Chained Dollars
at Seasonally Adjusted Annual Rates)
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3Q2004 2Q2004 Change/
Prel. Final Impact
------------------------
Real GDP 10889.7 10784.7 3.9%
Inventory Change 35.9 61.1 -$25.2
Real Final Sales 10852.0 10722.3 4.9%
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Components of GDP
-----------------
Personal Consumption 7666.8 7572.4 5.1%
Nonres. Fixed Investment* 1245.3 1207.9 13.0%
Resid. Fixed Investment 566.1 563.6 1.8%
Net Exports -588.0 -580.3 -$7.7
Government Purchases* 1952.4 1946.5 1.2%
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Implicit Price Deflators:
Gross Domestic Product 1.3% 3.2% --
Gross Domestic Purchases 1.8% 3.5% --
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*MEMO ITEMS
-----------
Government Purchases
--------------------
Total 1952.4 1946.5 1.2%
State & Local 1225.9 1228.3 -0.8%
Federal 726.4 718.1 4.7%
National Defense 491.2 479.9 9.8%
Nonresidential
Fixed Investment
----------------
Total 1245.3 1207.9 13.0%
Structures 241.5 241.7 -0.3%
Equipment & Software 1015.0 975.5 17.2%
Info. Processing
Equip. & Software 575.9 565.4 7.6%
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MAJOR GDP COMPONENTS -- CHANGES BETWEEN
"PRELIMINARY" AND "ADVANCE" 3Q2004 ESTIMATES
(Billions of 2000 Chained Dollars at
Seasonally Adjusted Annual Rates)
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3Q2004 3Q2004
Prel. Advance Change
----------------------------
Real GDP 10889.7 10883.4 6.3
Inventory Change 35.9 48.1 -12.2
Real Final Sales 10852.0 10833.9 18.1
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Personal Consumption 7666.8 7658.9 7.9
Nones. Fixed Invest. 1245.3 1241.7 3.6
Resid. Fixed Invest. 566.1 567.9 -1.8
Net Exports -588.0 -598.0 10.0
Govt. Purchases 1952.4 1953.1 -0.7
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REAL GROSS DOMESTIC PRODUCT (SEASONALLY
ADJUSTED ANNUAL RATES, 2000 CHAINED DOLLARS)
--------------------------------------------
Year Q1 Q2 Q3 Q4
----------------------------------------
2004 4.5% 3.3% 3.9% --
2003 1.9% 4.1% 7.4% 4.2%
2002 3.4% 2.4% 2.6% 0.7%
2001 -0.5% 1.2% -1.4% 1.6%
2000 1.0% 6.4% -0.5% 2.1%
1999 3.4% 3.4% 4.8% 7.3%
1998 4.5% 2.7% 4.7% 6.2%
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MEMO ITEM: Annual change in real GDP
before and after the "comprehensive
revision" published by the Commerce
Department on 12/10/03.
----------------------------------------
1929-2002 1959-1992 1992-2002
---------------------------------
After 3.4% 3.4% 3.2%
Before 3.4% 3.4% 3.2%
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