The Bureau of Economic Analysis announced that real GDP for the third quarter was revised from its earlier estimate of 2 percent to 2.7 percent. This is a nice improvement from the 1.3 percent growth experienced in the second quarter, and it suggests that the U.S. economy is growing modestly.
The revisions were mainly tied to higher inventories and export levels than earlier announced. These changed were larger than the downward revisions to consumer spending and fixed investment.
As I noted when the first estimate was released business capital spending slowed considerably between the second and third quarters. Nonresidential fixed investment subtracted 0.23 percentage points from GDP, with reduced spending on structures, equipment, and software. This is consistent with sentiment surveys showing rising anxieties about U.S. fiscal policies and slower sales (mainly abroad). Residential construction continues to be a bright spot.
The consumer picked up their purchases in the third quarter, but not as much as previously estimated. Spending on durable and nondurable goods added 0.64 percent and 0.18 percent to real GDP, with the downward revision mainly to nondurables. Overall consumer spending, including services, contributed 0.99 percent of the 2.7 percent growth in real output, or roughly 37 percent. (It was half in the previous estimate.)
Net exports made a positive contribution for the third straight quarter, but to be fair, they also reflect a deceleration in sales for goods overseas. Given the challenges seen in the global economy, a slower pace for international orders should be expected.
The other thing of note was the large contribution from the federal government, which added 0.71 percentage points to GDP. This was largely the result of end-of-fiscal-year defense spending. Government had been a drag on GDP — both from the federal and state and local levels — for eight consecutive quarters prior to the third quarter. Given that we are now in a new fiscal year and lower federal spending, not more, is the mantra, we are unlikely to see government adding to GDP in the fourth quarter or in 2013.
Looking ahead to forecasts for the fourth and or current quarter, I would anticipate real GDP growth around 2 percent or slightly higher. Business investment should continue to be weak, but this might be offset by improvements in consumer spending and housing. The most obvious element which could push this estimate lower is the fiscal cliff, and the extent to which the possibility of an economic downturn and higher taxes negatively impact consumer spending.
Chad Moutray is chief economist, National Association of Manufacturers.