Thursday, October 27, 2011

Real GDP Recovers to Above Its Pre-Recession Level

The BEA reported today on third quarter GDP, here are some hightlights:

1. Nominal GDP was $15,159 billion in the third quarter and real GDP (in 2005 dollars) reached a new all-time high of $13,353 billion, putting real output above the early-recession peak (and previous record high) of $13,310 billion in the second quarter of 2008.  

2. Real GDP grew at 2.5% in the third quarter and this marks the ninth consecutive quarter of real output growth starting in the third quarter of 2009.  The 2.5% growth in third quarter 2011 GDP matches the 2.5% average growth rate over the current nine-quarter economic expansion that started in third quarter 2009.   

3. Led by a 17.4% increase in business equipment and software, overall business investment grew at 16.3% in the third quarter, which was only the third time in the last decade that business investment increased more than 16% in a single quarter.  

4. Real consumption expenditures showed a 2.4% gain from Q2, which brought consumption spending to a record-setting $9,500 billion in Q3, and 1.5% above the pre-recession level of $9,313 billion in Q4 2007.  

MP: While we still have a sub-par and jobless recovery, the 2.5% real output growth for both Q3 and the average over the last nine quarters, and  the recovery of real GDP to above its pre-recession level would at least suggest that a pending double-dip recession is now pretty much out of the question.


At 10/27/2011 2:43 PM, Blogger morganovich said...

the q3 number is pretty shaky.

it's mostly statistical chicanery.

ppi and cpi are both 3.9% but they used a 2% deflator.

deflate at cpi/ppi and growth was 0.6%.

At 10/27/2011 3:00 PM, Blogger Buddy R Pacifico said...

"Overall business investment up 16.3%" is very impressive.

Personal Consumption Expenditures up 4.9% from 3.7%; but Personal Saving As A Percentage of Personal Income falls from 5.1% to 4.1%. This is worrisome.

At 10/27/2011 3:36 PM, Blogger VangelV said...

Let me give it a shot.

First morganivich is correct when he points out that the government is playing around with the data for political purposes. If we use the proper deflator the growth was anaemic.

Second, the population is larger. Even if we accepted the doctored figures GDP per capita is still lower.

Third, the false optimism is getting a bit old. How can anyone be optimistic when the country is swimming in debt and has unfunded liabilities that are more than ten times GDP, the USD is near an all time low against the Yen and the Euro is still worth $1.42? With one exception, no candidate for President is calling for a dime in cuts even as the Fed has to keep meddling in the market to prevent a liquidation. And with unemployment rates at 1970s levels one can't help noticing the growing social unrest that is threatening to increase the size of the police state.

Sorry Mark but I can't understand how you can ignore the evidence for as long as you have.

At 10/27/2011 3:48 PM, Blogger Rufus II said...

Either we get a large revision, or the 4qtr goes negative - Or Both.

Quite likely, Both.

At 10/27/2011 5:38 PM, Blogger Mike said...

I realize it's a lag, but the jobless rate (yet another minor bloodletting yesterday in my industry) tells me that the increase in GDP is almost impossible. As efficient as the American worker is, it seems to me, that sort of movement would almost necessitate a bigger work force if it meant anything.

At 10/27/2011 5:53 PM, Blogger PeakTrader said...

If everyone clinged to old methods, like Morganovich and VangelV, we'd still be using manual typewriters.

Why The Economy Is A Lot Stronger Than You Think
BusinessWeek Online
FEBRUARY 13, 2006

Everyone knows the U.S. is well down the road to becoming a knowledge economy, one driven by ideas and innovation.

What you may not realize is that the government's decades-old system of number collection and crunching captures investments in equipment, buildings, and software, but for the most part misses the growing portion of GDP that is generating the cool, game-changing ideas.

"As we've become a more knowledge-based economy," says University of Maryland economist Charles R. Hulten, "our statistics have not shifted to capture the effects."

The statistical wizards at the Bureau of Economic Analysis in Washington can whip up a spreadsheet showing how much the railroads spend on furniture ($39 million in 2004, to be exact). But they have no way of tracking the billions of dollars companies spend each year on innovation and product design, brand-building, employee training, or any of the other intangible investments required to compete in today's global economy.

That means that the resources put into creating such world-beating innovations as the anticancer drug Avastin, inhaled insulin, Starbuck's, exchange-traded funds, and yes, even the iPod, don't show up in the official numbers.

As Greenspan would be the first to tell you, it's a lot easier counting how many widgets the nation produces in a year than quantifying the creation and marketing of knowledge. After all, we're talking about intangibles: brand equity, the development of talent, the export of best practices.

By the early '90s, Greenspan was becoming increasingly frustrated by the official numbers' inability to explain a rapidly evolving economy.

In 1996 and 1997 he refused to accept conventional data telling him that productivity growth was falling in much of the service sector, noting -- correctly, as it turns out -- that "this pattern is highly unlikely." He also pointed out that the official numbers for consumer inflation were too high.

The BEA started treating business spending on software as a long-lived investment. The decision was overdue. Companies were spending more than $150 billion annually on software, far more than the $100 billion for computer hardware.

And the software often stayed in use longer than the hardware. The fact that economists could go into stores and see software in brightly colored boxes reassured them that it was real. "Prepackaged software is a lot easier" to count, recalls Landefeld.

Silly as it may seem now, it was a revolutionary change at the time. But over the past seven years the economy has continued to evolve while the numbers we use to capture it have remained the same.

Globalization, outsourcing, and the emphasis on innovation and creativity are forcing businesses to shift at a dramatic rate from tangible to intangible investments.

Ultimately, we might end up with a "knowledge-adjusted" GDP, which would track the spending so crucial for global competitiveness.

At 10/27/2011 6:58 PM, Blogger Craig Howard said...

Nominal GDP was $15,159 billion in the third quarter and real GDP (in 2005 dollars) reached a new all-time high of $13,353 billion, putting real output above the early-recession peak (and previous record high) of $13,310 billion in the second quarter of 2008.

Nonsense. GDP doesn't tell us at all where that spending came from. Was it really from production? Or was it from drawing down our capital reserves? Maybe, it's due to an error in calculating price inflation?

GDP can't tell us. It wasn't designed to. Intentionally.

At 10/27/2011 7:07 PM, Anonymous Anonymous said...

So the economy has been flat for four years, after a decade of unmitigated increase, and this is the "great recession" or "lesser depression," admittedly only dimwits like Krugman call it that, that everyone's whining about? Even if you take into account the quibbles about inflation or population growth, that's a remarkable increase followed by a recent plateau. As Peak points out, I bet part of it is that it's tougher for the bureaucrats to measure the knowledge economy. Also, a lot of stuff we used to pay for is now available for free: music sales have fallen almost 40% in the last decade.

That's not because people stopped listening to music, it's because many pirate it and concert revenue has gone up to account for that somewhat. I never used to listen to the radio because I considered most of it lowest-common-denominator pap, but now I regularly listen to podcasts like this one, which are probably too niche to ever make it on radio but thrive online. That econ podcast is free, both in money and ads, others have ads and try to make me pay in time spent listening to the ads, though I often just skip the ads. Instead of being limited to the crap on TV, I can satisfy my scientific curiosity by watching scientific talks like this one. Most of this stuff is still free, but it soon won't be.

The bottleneck right now is that we are on the verge of a massive rush to an information economy, but we still aren't sure how to monetize online content and services. I've pointed out that the solution is micropayments, but whatever the solution is (many are experimenting with ads now), we're on the verge of another tech boom when we really figure it out. But as long as we are collectively too dumb to figure the monetization out, we get the growth we deserve.

At 10/27/2011 7:32 PM, Blogger Mike said...

"we're on the verge of another tech boom when we really figure it out. But as long as we are collectively too dumb to figure the monetization out, we get the growth we deserve."

For what it's worth (probably not that much) I think you're 99.9% right about that.
I think it's already begun and those formerly in industries that have been reduced or replaced are having a very hard time figuring out what happened.

At 10/27/2011 7:35 PM, Blogger Benjamin Cole said...

"3. Led by a 17.4% increase in business equipment and software, overall business investment grew at 16.3% in the third quarter, which was only the third time in the last decade that business investment increased more than 16% in a single quarter."

This crushes the "business is afraid of a socialist Muslim" in the White House argument. Business responds to demand.

Morganovich and Vange have staked their claims, and thus refuse to believe stats that do not comply with their world visions. In fact, there are plenty of good arguments (advanced by Dan Boudreaux chairman of the George Mason Economic department) that the CPI overstates inflation. I believe it does--tell me, when I take 100 pictures of furniture and e-mail them instantly to someone across an ocean, what is that worth?

The marginal cost today is zero. To even approximate that 20 years ago was hundreds, perhaps thousands of dollars.

If the Fed goes to nominal GDP targeting, as advocated by the growing Market Monetarism movement, we could see an equities and real estate rally for years and years. If the Fed instead salutes Japan, we will get Japanned. Get out of all investment, save perhaps dividend paying stocks.

I encourage Dr. Perry to take a long, long, long (and positive!) look at the rising Market Monetarism movement.

At 10/27/2011 7:59 PM, Blogger morganovich said...


that is a nonsense nonsequitor as well as being factually inaccurate.

that CPI figure of 3.9% IS the new way.

if we use the old cpi, it's running at 9% and we are still deep in recession.

is it a coincidence that moving to these low deflators has led to the 2 slowest employment recoveries since ww2 by at nearly a factor of 2 (for 2000, an allegedly shallow recession) and this current quagmire, which will easily eclipse that.

that data speaks for itself.

if there's growth, where are the jobs?

if there's only 2% inflation (gdp deflator) why is cpi twice that even when so heavily adulterated? why are import and export costs up double digits?

oh, and bunny, as ever, you have nop command of the facts.

3.9% is the published CPI. the one you defend.

the gdp deflator is half that.

that's an absurd variance, and totally impossible.

the double dip argument is meaningless, we have not come out of the first one yet in real terms using any sane gdp deflator.

At 10/27/2011 8:03 PM, Blogger morganovich said...


you have never once produced a single one of these mythical "good arguments" of yours. you just claim they exist.

i renew my challenge to you:

show me one single piece of actual data from the boskin report that is not just supposition and assumption.

it was a political piece written to allow reductions in social security COLA. you are mistaking the editorial page for the news.

At 10/27/2011 8:28 PM, Blogger aorod said...

Don't worry, rising energy prices will keep a lid on economic growth. Great energy policy we have.

At 10/27/2011 8:31 PM, Anonymous Anonymous said...

Mike, yep, part of the transition is already happening, ie making the economy more efficient by using new technology. That lowers the cost of goods for most consumers but the problem is that it also lowers employment, without enough new employment opening up to replace the jobs lost. This changes when we figure out online monetization and widely deploy the solution.

morganovich, I find these inflation debates somewhat pointless, but what do you make of those who claim that even the post-Boskin measures overstate inflation? That page links to his papers with more info about his claims.

At 10/27/2011 9:06 PM, Blogger arbitrage789 said...


"... the government is playing around with the data for political purposes"

I'm as cynical as the next guy, but I don't think that there's any grand conspiracy to distort the numbers 13 months before the election.

(That being said, I'm going to be highly skeptical of any economic numbers that are released during September and October of next year).

At 10/27/2011 10:20 PM, Blogger Rufus II said...

The auto companies rushed a huge number of units onto dealers' lots, but, due to light "final demand," they are now Cutting Back Production.

You, also, had an enormous boost in Industrial Production from the "Heat wave," and the attendant increased Electricity Generation.

And, Imports of Petroleum (and prices) dropped when Obama threw 30 Million Barrels of Oil onto the market from our supposed "Strategic Reserves." (while other IEA countries contributed a like amount - mostly gasoline, and diesel.)

Q3 was an aberration. Retail sales, as reported by Goldman, weekly, are falling, and gasoline-supplied continues to run behind last year.

I'm sticking with a negative print This qtr.

At 10/27/2011 11:04 PM, Blogger Benjamin Cole said...


In an article in the June 2010 issue of the American Economic Review, economists Christian Broda and David E. Weinstein estimate that the Consumer Price Index overstates inflation by 0.8 percent per year.

Morgan I realize a peer-reviewed article by a couple Phds in economics in the national economics bible means nothing, and that your hero crack-pots, cranks and fools at Shadowstats know how to really cook up the right inflation stats.

My guess is that you shorted the Dow at 7,000 and now have brown streaks all over your exposed rear. Good luck.

At 10/28/2011 12:38 AM, Blogger juandos said...

Maybe there's a reason for what is probably a short upward spike in the GDP: The Inexplicable American Consumer Strikes Again

The reasons are obvious. The Fed is winning its 12-year war on real wages. Its mechanism: create inflation that exceeds nominal wage increases. The numbers are ugly. According to today's GDP report, real disposable personal income—income adjusted for inflation and taxes—decreased by 1.7% in the third quarter (BEA). Since their peak in 1999, real wages have dropped 9%. Median household income—a function of wages and unemployment—has fallen 9.8% between December 2007 and June 2011 (Sentier Research). For many people, the situation is even worse due to the skyrocketing costs of healthcare and higher education, which are eating up an ever greater part of the declining family budget (for more: A Dysfunctional System That Bankrupts A Generation). And Unemployment remains a fiasco by any measure: U-6, the broadest measure the Bureau of Labor Statistics offers, and the one that most closely resembles reality, hovers at 16.5%.

And yet the inexplicable American consumer went ... to the mall. And to the doctor—of the $10.8 trillion in consumer spending (seasonally adjusted annual rate), $1.76 trillion went to healthcare, about half of which was paid for by government. And healthcare has been on a tear, up 6% over the same period last year.

At 10/28/2011 2:58 AM, Blogger PeakTrader said...

Morganovich, I've explained each of your points in detail before (including, if the price of gasoline doubles, people won't pay twice as much for gasoline, because they'll use less).

At 10/28/2011 6:23 AM, Blogger geoih said...

Creating money out of nothing, spending it so you can add it to the GDP equation, and then GDP increases, only shows that math works, nothing else.

At 10/28/2011 8:14 AM, Blogger morganovich said...


once more you cite no actual data.

lots of people with degrees say all sorts of things. you can appeal to authority and so can i. frankly, i'd go with guys like bill gross who have been right for decades as opposed to some academics, many of whom are keynsians.

that's why actual discussions contain data and facts.

you are unable to produce any because they don't exist.

At 10/28/2011 8:19 AM, Blogger morganovich said...


"Morganovich, I've explained each of your points in detail before (including, if the price of gasoline doubles, people won't pay twice as much for gasoline, because they'll use less)."

and that is already heavily built into the geometric weighting used for CPI.

you are trying to double dip here and claim the same reduction twice.

you are also ignoring the fact that geometric weighting assumes all price moves are supply side driven.

sometimes, prices rise because consumption went up.

if the atkins diet causes more people to eat beef and fewer to eat pasta, then beef goes up in price and pasta drops. beef needs to be overweighted, not underweighted. the BLS policy gives you an adjustment with the wrong sign.

but again, even using the methods you espouse, the gdp deflator was 1.9% too low relative to published CPI.

so you tell me, why is the deflator half of CPI? you seem to have no argument here at all. cpi already accounts for everyhting you are describing and then some.

At 10/28/2011 8:32 AM, Blogger morganovich said...


the inflation debate is anything but pointless.

cpi is used in damn near everyhting. understate it, and growth is overstated in real terms. quality of life and real buying power can be dropping while you claim it is increasing. you get the wrong signal about the effects of policy.

regarding those post boskin theiries, i have read many of them.

not one has nay actual data in it. they are entirely based on assumption and supposition. they make guesses about quality adjustments and wild assumptions about substitution that are never validated anywhere with data.

they make climate science look well supported.

it's just an exercise in assumptions and models.

i'd recommend you read a few of them in detail. see if you can find any actual factual support for the propositions.

like keynes, these "economists" take some vaguely plasible sounding assumptions and build them into a model, but never ever actually provide any evidence that they effects they posit exist.

it's classic academic groupthink, in this case driven by political policy goals which taints it yet further.

go back and read the debates around boskin. it was specifically produced to defend a policy goal which was dropping the social security cost of living adjustment.

the interesting thing about the low inflation side of this debate, is they never actually address the other sides issues. they just repeat their assumptions over and over, a trick they learned from the keynsians. they review each others work, and all say "well yes, that sounds correct" but never actually produce any evidence, just clever new ways of structuring assumptions to get the result they want.

this is very dangerous.

the US just had its own lost decade, and we don't even see it in the data as a result.

we are running outlandishly loose monetary policies, but have defined their ill effects out of existence.

they are being felt in homes all over the US though.

how many people do you know who feel better off in 2011 than 2000?

look at what has happened to debt.

that's what happens when you run negative real interest rates. even if your stats claim they are positive, consumers rapidly figure out that they are not and behave that way.

setting your scale back 20 pounds will not get you into your old pants.

At 10/28/2011 8:36 AM, Blogger morganovich said...

to see the effects of negative interest rates and how we are heading right back into the same mess, one need only look at data like this:

"Personal income increased $17.3 billion, or 0.1 percent ... in September ... Personal consumption expenditures (PCE) increased $68.7 billion, or 0.6 percent."

you cannot grow GDP more than income on a sustainable basis.

this is just gearing up for the next mess.

chronically negative real interest rates will just lurch you from bubble to bubble with increasingly nasty busts.

At 10/28/2011 8:41 AM, Blogger morganovich said...

look what happened to the US savings rate.

in 1992, when the loose money reall got turned on, it was 8%.

by 2006, 2%. it has increased a bit (though not to healthy levels) but is now plummeting again.

that's what negative real rates get you, high consumption, low savings.

in spite of outlandish and unprecedented liquidity, the S+P is 16% below 2000 levels, the longest period of negative markets since the great depression.

this is not a coincidence.

At 10/28/2011 9:43 AM, Blogger Paul said...


"This crushes the "business is afraid of a socialist Muslim" in the White House argument. Business responds to demand."

Always looking to vindicate your boyfriend, aren't you, Benji boy? Are businesses hiring? How's that national debt coming along?

At 10/28/2011 11:21 AM, Blogger Mike said...


I believe that solution is actually part (or more) of the problems we're seeing. I think the monetization has already begun - in the way of lowering costs dramatically over businesses with brick, mortar and people inside. Yes, the consumer prices are a bit better, but the cost savings and referral opportunities of doing business online is really web monetization in its infancy.

The example in the article you posted is good, but I'll give you a better one. I'm about to buy a Kinect for my XBox. Amazon has it for juuuussst enough less (when you factor in no tax and shipping) than the B&M businesses that I'll buy there. But Amazon's margin has to be better because the price is so close.

At 10/28/2011 11:42 AM, Blogger Paul said...

We're also spending about a trillion dollars more on a federal level since 2007, the year Benji's Democrats took over the Congress. How much does that factor into the GDP numbers?

At 10/28/2011 1:37 PM, Blogger JBP said...

Always fun to look at GPDI, the measure of the private economy.

In the last quareter, we are at $1918 Billion per the St. Louis Fed.

By contrast, the private economy peaked in 2006 at $2352 Billion.

We are still a 20% smaller private economy than we were 5 years ago.


At 10/28/2011 3:23 PM, Blogger PeakTrader said...

Morganovich, you may want to read the following:

What's A 'Chained' CPI?
July 20, 2011

A plan put forth by a group of senators known as the "Gang of Six" looks like it could be a solution to solving the nation's impending debt ceiling problem. Among the ideas in the plan is trimming the deficit by changing how the country calculates inflation through using something called a "chained consumer price index."

NORRIS: Could you, in one sentence, explain to us exactly what the CPI is and how a chained CPI is different from a regular CPI?

Mr. GREENSTEIN: The regular CPI measures the costs each month of a market basket of items that average Americans may purchase each month and so it tells us how much prices are rising, what the inflation rate is.

The chained CPI is identical, really, to the regular CPI in all respects except one. It includes an adjustment so that if, for example, beef prices rise much faster than chicken prices, and consumers, as a result, buy less beef and more chicken, it picks up the switching from the beef to the chicken, which makes their total costs for the month rise a little less quickly than if you assumed they continued to buy the same amount of beef and the same amount of chicken as before.

At 10/28/2011 3:55 PM, Blogger PeakTrader said...

And, it's not normally the case when prices rise, consumers buy more, and when prices fall, consumers buy less.

At 10/28/2011 9:38 PM, Anonymous Anonymous said...

Morganovich, I'd prefer that we didn't have govt "policy," so that GDP would be irrelevant to such decisions. For me, GDP is a crude measure to estimate activity: if you're basing "policy" on hoping to measure it "accurately," you're already making a big mistake. You make a blanket statement that those who believe inflation is still understated don't provide data. But I linked to a specific proponent of such an approach, who talks about papers like this, which claim inflation is overstated and provide data too. I don't see how they are just "exercising" assumptions and models and you aren't. Any model of the price level, including yours, is going to be subject to the same claims, ie that your model is full of assumptions too. You go on about the supposed effects of "loose monetary policies," but it's all very vague. I think most people who are still employed feel better off in 2011 than 2000, I know I do.

I think those railing against the Fed, like Ron Paul, are not properly examining the fluid nature of money. Hummel and Henderson have argued that Greenspan essentially froze the monetary base and that it is velocity changes that have provided inflation since, which the Fed can't control. For all those whining about the massive explosion in Fed reserves over the last couple of years, the fact remains that all that extra money has not been printed and sits in electronic accounts in the reserve banks, without being loaned out, so it has not entered the economy. Like Hummel and Henderson, I find the Bernanke argument that it was a global savings glut that drove the recent bubbles, not the small increases in base money, more persuasive, particularly since the housing bubble was also global. I think you and the Ron Paul crowd greatly overestimate the importance of the Fed.

At 10/29/2011 3:33 AM, Blogger PeakTrader said...

Also, I may add, consumers are more sensitive to price changes than a few years ago.

For example, Netflix lost 800,000 customers after a price increase, which is 200,000 more than expected.


Post a Comment

<< Home