CommunityThe Bullpen

US GDP Rises to 2.7%

The Commerce Department revised its estimate of GDP in the third quarter up to 2.7%, a substantial gain from the initial estimate and an indication that the economy grew at a solid clip in the months leading up to the Presidential election, putting wind at the back of President Obama. This represents the fastest economic growth since the end of 2011, and double the average for the first two quarters of the year.

The estimate for July, August and September 2012 increased mainly because of numbers better than the initial forecast in business inventories and even federal spending. That’s actually more of an ominous sign. Inventory growth means that businesses are well-stocked for the following quarter and don’t need to make as many purchases. This is one reason why economists fear that fourth-quarter growth could stall to closer to a 1% annualized rate. The effects of Hurricane Sandy will play into that story as well. However, first-time jobless claims did continue to drop after spiking after Sandy.

Matt Yglesias points out that nominal GDP growth topped 5%, coming in at 5.5%. This means that GDP is finally catching back up to trend growth. 5% is about the standard trend before 2008, then we obviously fell off, and we never had any quarter that bounced back from that by going above trend to catch up. This means that inflation could be rising at a level commensurate with catch-up growth, which should help GDP.

But if this is all based on an inventory number, then it’s probably going to level out. And federal spending isn’t going to spike anytime soon – we’re having a national conversation about how to cut it, and therefore cut GDP growth.

Previous post

Fast Food Workers in New York City Stage Wildcat Strike

Next post

Arizona Won't Build Its Own Health Care Exchange

David Dayen

David Dayen