In their third estimate of the US GDP for the third quarter of 2014, the Bureau of Economic Analysis (BEA) reported that the economy was growing at an astounding +4.96% annualized rate, up an additional +1.07% from their prior estimate for the 3rd quarter and now up +0.37% from the already very healthy 4.59% annualized growth rate registered during the second quarter.
This revision contained improved numbers for nearly every segment of the economy. The largest gains from the previous report were recorded in consumer expenditures for services (+0.61%, mostly in healthcare) and corporate non-residential investment (+0.24%, primarily in structures and intellectual property). Consumer expenditures for goods and inventories each added another +0.09% to the headline number, while governmental spending and imports added +0.04% each. Only exports weakened, softening their contribution to the headline number by -0.04% (offsetting the positive contribution from imports).
Despite the increased consumer spending, households actually lost disposable income in this revision — losing yet another $29 in real annualized per capita disposable income (now reported to be $37,496 per annum). This is now down a full $373 per year from the 4th quarter of 2012. The healthcare spending growth reported above came exclusively from reduced household savings, which dropped yet another -0.3% percent in this report.
As mentioned last month, softening energy prices play a major role in this report, since during the 3rd quarter dollar-based energy prices were plunging (and have even accelerated their dive since). US “at the pump” gasoline prices fell 9.8% quarter-to-quarter (a -33.8% annualized rate) — pushing most consumer oriented inflation indexes into negative territory. During the third quarter (i.e., from July through September) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was actually mildly dis-inflationary at a -0.10% (annualized) rate, and the price index reported by the Billion Prices Project (BPP — which arguably reflected the real experiences of American households) was slightly more dis-inflationary at -0.18% (annualized).
Yet for this report the BEA still assumed an effective positive annualized quarterly inflation of 1.39%. Over reported inflation will result in a more pessimistic growth data, and if the BEA's numbers were corrected for inflation using the appropriate BLS CPI-U and PPI indexes the economy would be reported to be growing at an astronomical 6.52% annualized rate. If we were to use just the BPP data to adjust for inflation, the quarter's growth rate would have been growing even faster, at a 6.60% annualized rate.
Among the notable items in the report :
— The headline contribution from consumer expenditures for goods was +1.06% (up +0.09% from the previous estimate, but down -0.27% from the prior quarter).
— The contribution made by consumer services spending to the headline surged to +1.15% (up +0.61% from the previous report and +0.73% from the 0.42% reported last quarter). The combined consumer contribution to the headline number by consumers was 2.21%, up +0.46% from the prior quarter.
— Commercial private fixed investments provided +1.21% of the headline number (down -0.24% from the 1.45% in the 2nd quarter), and this continued positive growth is nearly all non-residential. The increases shown in this report came almost equally from spending on structures and the recently added intellectual property category.
