Third quarter GDP growth came in at 2.5%. That is slightly above consensus expectations of 2.3% growth. That is almost twice as fast as the 1.3% pace in the second quarter, and over six times as fast as the anemic 0.4% pace in the first quarter.
Further, the quality of the growth was very good, as the change in inventories was a significant drag on growth. Absent the much slower growth in inventories in the third quarter relative to the second, growth would have come in at 3.58%.
This was a very nice report, but is still not enough to really change the situation on the ground for the millions of people who are seriously hurting. Clearly, though, those who were declaring that we had already entered a new recession a few weeks ago were just flat out wrong.
To make sense of what is going on in the GDP report, it’s best to focus on the contributions each sector of the economy made to that overall growth rate of 2.50%, rather than the growth rates of each sector. That is because the different parts of the economy are of vastly different sizes, and a relatively small percentage change in a big part of the economy, such as Personal Consumption Expenditures (PCE) can have a much bigger impact on the overall growth rate of the economy than a big change in a small part of the economy, like Federal Non-Defense spending (excluding transfer payments).
Take a look at the path of GDP growth over the last 30 years. The pace of growth in the third quarter was right about in the middle of the historical experience.
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