Friday, October 28, 2005

GDP growth continues apace 

Today's report has third quarter GDP up 3.8% versus 3.3% in the second quarter. Kash, Tufte and Polley all pronounce the data good. There seems to be some surprise that the hurricanes on the Gulf Coast didn't show more of an effect. They do, though, in the personal income data:
Current-dollar personal income increased $71.8 billion (2.8 percent) in the third quarter, compared with an increase of $147.8 billion (6.0 percent) in the second. The slowdown in personal income partlyreflected the impacts of Hurricanes Katrina and Rita. Rental income and proprietors' income werereduced by the property damage caused by the hurricanes, and current transfer receipts were increasedby insurance settlements related to the hurricanes.

Remember, as the BEA points out, that destruction of existing capital does not have an immediate impact on GDP, since GDP counts only present production. We nevertheless feel poorer, and we can thus expect reinvestment, additional savings and work, and probably less consumption. A neoclassical view, therefore, would suggest perhaps a pickup in production over the next six months or so.