HousingWire

Final GDP for 3Q Shows 4.1% growth

Troubling that almost 2 points is inventory expansion, not sales

December 20, 2013

Real gross domestic product (GDP) climbed from 3.6% to 4.1% in the third quarter of 2013, the highest it has achieved in two years, according to Friday’s report from the Bureau of Economic Analysis.

While any increase is welcome, it’s important to note that nearly two points of that increase is in inventory expansion rather than in final sales.

The GDP— the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 4.1% in the third quarter of 2013, according to the Bureau of Economic Analysis.

In the second quarter, real GDP increased 2.5%.

The BEA report states that, "The increase in real GDP in the third quarter primarily reflected positive contributions from private inventory investment, PCE, nonresidential fixed investment, exports, residential fixed investment, and state and local government spending that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased."

Further, the report notes, the change in real private inventories "added 1.67 percentage points to the third-quarter change in real GDP, after adding 0.41 percentage point to the second-quarter change. Private businesses increased inventories $115.7 billion in the third quarter, following increases of $56.6 billion in the second quarter and $42.2 billion in the first."

Good news overall, but the bottom line is that given that more than 10 million Americans have dropped out of the workforce since 2009 and that even the base measure of the unemployment rate is still above 7%, a mere 2.5% real final sales rate isn’t going to make a dent in the unemployment rate or return even half of that 10 million to the job force.  

Not to mention, the Fed initially set its benchmark unemployment rate for MBS tapering at 6.5%, which is well below the current 7% unemployment rate. The Fed green lighted a taper to begin in January this week, but the job market still falls short of the Fed's original goal.