GDP Growth in the Third Quarter, Second Estimate – Inventory Investment, Blessing or Curse?

The Bureau of Economic Analysis (BEA) released the second estimate of real GDP growth for the third quarter of 2013. Real GDP growth was revised upward to a seasonally adjusted annual rate of 3.6%, from the advance estimate of 2.8%. Real GDP grew at annual rate of 2.5% in the second quarter and 1.1% in the first quarter.

The downside in last month’s advance estimate of GDP growth was that despite accelerating from 2.5% to 2.8% between the second and third quarters, overall growth was heavily reliant on inventory investment (0.8 of the 2.8 percentage points), and growth in personal consumption expenditures (PCE), typically 65%-70% of GDP, slowed.

Today’s upward revision provided more of the same. The 0.8 percentage point improvement in GDP growth (from 2.8% to 3.6%) was more than accounted for by the upward revision to inventory investment, bringing its contribution to 1.7 percentage points of the 3.6% growth. And the growth in PCE, was revised down to an annual rate of 1.4% from 1.5%.

We expect GDP growth to slow sharply in the fourth quarter with an inventory investment payback shaving 1.5 percentage points from growth, and possibly another 0.5 percentage points from growth in the first quarter of 2014.


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