The Third Quarter Was Better Than Expected - October 26, 2012
The nation's economy expanded by a better-than-expected 2.0% rate during the July-through-October period according to data issued at 8:30 AM (EDT) this morning. The consensus forecast for the period had been for a growth rate of 1.8%, and even that figure had been revised upward from a 1.5% expectation in place earlier.
This rate of economic improvement strengthened from the second quarter when growth had come in at 1.3%. The 2.0% rate of growth also matched the increase in the nation's gross domestic product achieved during the first quarter of this year. The greater growth was assisted by gains in consumer spending. Moreover, government spending accelerated and the housing market improved further.
With this latest GDP gain, the economy has now expanded for 13 consecutive quarters following the major economic reversals suffered from late 2007 through the opening quarter of 2009. However, the pace has been mostly lackluster, with growth rates generally holding in the 1%-2% range--with a few exceptions. However, the latest metric gives us some hope, as we are also seeing further strength so far during the current three months, most notably in housing, and on the job-creation front.
Meanwhile, government spending gained in the latest quarter for the first time in some two years, as such outlays rose for defense expenditures. Overall, government outlays jumped by 9.6% in the period, following a slight 0.2% dip in the second three months of this year.
On the other hand, business investment weakened somewhat in the latest quarter, with companies apparently unwilling to make major commitments as Washington awaits the impending fiscal cliff at the end of this year. Estimates are that the unemployment rate, now down at 7.8%, could rise significantly if these mandated spending cuts and tax increases are allowed to go into effect. Our sense continues to be that following the contentious election on November 6th, that cooler heads will prevail in the Congress and that we will avoid this potential financial catastrophe.
As for some components in this report, final sales jumped by 2.1% in the third quarter, which bettered the 1.7% increase logged in the prior period. On the other hand, trade was a negative as both imports and exports fell in the quarter. Business spending also contracted after gaining ground in the second quarter.
Overall, though, the report was a better one than many had expected, and while this remains one of the more paltry expansions on record during the postwar era, there are definite signs that growth is at least starting to quicken. We caution, however, that we have been down this road before only to be disappointed as subsequent data are released.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.