The Bureau of Economic Analysis (BEA) released its “second” estimate for real GDP growth in the third quarter today. Real GDP growth was revised upward to 2.5 percent from the “advance” estimate of 2.0 percent. Real GDP growth was 1.7 percent in the second quarter. The revisions reflect stronger growth in personal consumption expenditures (PCE), exports and state and local government spending, and less reliance on inventory investment.
These are all positive developments: PCE growth is critical to a self-sustaining recovery; export growth contributes to GDP growth while domestic demand is restrained by continuing household balance sheet repair; state and local government spending appears to have turned the corner after having been a drag on GDP growth in all but two quarters since the end of 2008; and, a declining reliance on inventory investment signals more robust underlying and sustainable demand.
Overall, this pace represents a solid improvement from last quarter’s 1.7 percent growth rate, but is still just roughly trend growth in output. We will need to see sustained growth at a higher rate, at least 3.5 percent, before we begin to see any significant decline in the unemployment rate.