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U.S. GDP growth pops to 3.6% in today's second estimate, but that's not as meaningful for a Fed taper as it seems
12/05/2013 1:20 pm EST
Today’s release of revised third quarter GDP growth is frustratingly inconclusive—if you’re looking for, as the market is, a strong trend that might indicate which way the Fed will jump on the taper/no taper decision at its December 18 meeting.
The headline number shows a very strong economy. The revised numbers say that third quarter GDP growth came in at 3.6%. That’s a big jump from the 2.8% in the first estimate of third quarter GDP growth and a significant increase from the 2.5% growth rate in the second quarter
If we could take these numbers at face value—and, more importantly, if we were convinced that the Federal Reserve would take these numbers at face value—then I think we’d be looking at a strong argument for believing that the Fed would start to reduce its $85 billion in monthly asset purchases with the December 18 meeting.
But we can’t take these numbers at face value—and I’m certain that the Fed won’t. The big increase in revised third quarter growth doesn’t show an acceleration in the economy’s growth rate. Instead the jump from first to second estimate is due to a big increase in inventories. Growth in inventories, I’d point out, is only a good thing if those inventories get sold. If they don’t, if goods sit on warehouse shelves, inventories become a big negative for economic growth in the next quarter.
Real final sales, a number that excludes inventories, actually got revised down in today’s estimates to 1.9%. That’s a drop from 2% growth in the first estimate for third quarter GDP and is down from a 2.1% growth rate in the second quarter.
Personal consumption spending also got revised downward to 1.4% from 1.5% today, supporting the slight downward trend in real final sales. Personal consumption spending, what you and I call consumer spending, increased by 1.8% in the second quarter so today’s downward revision shows an even bigger slowing in consumer spending than the first estimate did.
Given the inconclusive nature of today’s GDP numbers, I think we’re set up to have the financial markets react relatively strongly to tomorrow’s jobs numbers for November. The consensus of economists surveyed by Briefing.com calls for the economy to have added 185,000 jobs in the month. That would be below the 204,000 added in October.
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