by Bill McBride on 10/30/2014 08:44:00 AM
Thursday, October 30, 2014
Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 3.5 percent in the third quarter of 2014, according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.6 percent.The advance Q3 GDP report, with 3.5% annualized growth, was above expectations of a 2.8% increase.
The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.
Personal consumption expenditures (PCE) increased at a 1.8% annualized rate - a slow pace.
The first graph shows the contribution to percent change in GDP for residential investment (RI) and state and local governments since 2005.
This shows the huge slump in RI during the housing bust (blue), followed by the unprecedented period of state and local austerity (red) not seen since the Depression.
Click on graph for larger image.
State and local government spending was positive in Q3, and I expect state and local governments to continue to make a positive contribution to GDP in Q4 and in 2015.
RI (blue) added to GDP growth for a few years, before subtracting in Q4 2013 and Q1 2014. RI bounced back in Q2 and Q3.
The second graph shows residential investment as a percent of GDP.
Residential Investment as a percent of GDP has bottomed, but it still below the levels of previous recessions - and I expect RI to continue to increase for the next few years.
I'll break down Residential Investment into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.
The third graph shows non-residential investment in structures, equipment and "intellectual property products". Investment is trending up as a percent of GDP..
I'll add details for investment in offices, malls and hotels next week.
Overall this was an OK report, however PCE was weak (I expect stronger PCE going forward).
Posted by Bill McBride on 10/30/2014 08:44:00 AM